Healthscope Limited (ASX:HSO), a healthcare company based in Australia, led the ASX gainers with a relatively large price hike in the past couple of weeks. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at Healthscope’s outlook and value based on the most recent financial data to see if the opportunity still exists. Check out our latest analysis for Healthscope
What is Healthscope worth?
According to my relative valuation model, the stock seems to be currently fairly priced. In this instance, I’ve used the price-to-equity (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Healthscope’s ratio of 21.99x is trading slightly below its industry peers’ ratio of 23.41x, which means if you buy Healthscope today, you’d be paying a reasonable price for it. And if you believe that Healthscope should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Furthermore, Healthscope’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
Can we expect growth from Healthscope?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations. Healthscope’s earnings over the next few years are expected to increase by 30.29%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has already priced in Healthscope’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at Healthscope? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on Healthscope, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for Healthscope, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.