Healthscope (HSO) is unusual in its sector. Healthcare stocks are generally well supported, with top quality companies like CSL, Cochlear and Ramsay enjoying status as core holdings in many portfolios. In contrast, HSO is trading near its all-time lows.

The reason is a fall in earnings as an ambitious building program is rolled out. Earnings and profits fell at the last half year report, again unusual for the sector. Interest costs and depreciation both rose, reflecting the capital expenditure. However, a number of these projects are due to come online this year. 

This sees analysts estimating long term growth at around 20%. At current levels the Price to Earnings ratio is around 20x giving a juicy PE/G ratio close to one. There are significant risks here, not least management’s ability to deliver large construction projects on budget and on time. In my view the share price close to the low of $2.12 makes this a risk worth taking. While HSO looks like an ugly duckling at the moment, it may yet become a swan.

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