Why Are Raffles Medical Group Ltd’s Shares Down By 13% Over The Past Month?

Raffles Medical Group Ltd (SGX: BSL) is a healthcare services provider with a network of healthcare facilities in five countries and thirteen cities. Its current flagship asset is Raffles Hospital in Singapore, a tertiary care hospital located along North Bridge Road. It also has two hospitals under development in China at the moment and they are scheduled to be completed by 2018 and 2019.

Over the past month, the company’s stock price has fallen by 13%. What may have caused this?

Reasons for a decline

There can be many reasons behind a stock’s price decline. But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related.

The former deals with how a stock’s business has performed or is expected to perform. And in terms of business performance, one of the really important numbers would be the stock’s profits.

Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic et cetera? In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up stock prices.

The case with Raffles Medical

In Raffles Medical’s case, I believe it’s the latter that better explains the recent stock price decline. Here’s a table show some important items from the company’s income statement for the second quarters of 2017 and 2016:

Source: Raffles Medical 2017 second quarter earnings

We can see that Raffles Medical’s revenue and profit were both flat on a year-on-year basis.

Though there was a marginal decline in EBITDA and operating profit (down by 1.4% and 1.9%, respectively, on a year-on-year basis), I don’t think it justifies the 13% drop in share price after the recent 2017 second quarter results announcement; the company’s results were released on 31 July 2017.

Thus, it is likely that investors’ sentiment turned negative recently. It is hard to point out specific reasons for the change in investors’ mood, but I think it may be due to two things.

Firstly, Raffles Medical’s recent growth is weak, which does not align well with the expectation of investors who are used to the company’s above-average growth rates in the past. Secondly, investors are less optimistic about Singapore’s medical tourism industry going forward due to rising costs and growing competition.

Going forward, it would be up to Raffles Medical to exhibit growth in order to rebuff negative investor-sentiment.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned. Motley Fool has a buy recommendation for Raffles Medical.