NMC was the worst performing FTSE 100 stock in 2019. Should I buy it?

NMC Health saw a 31.3% fall last year! Jonathan Smith looks to see what caused it and whether it is a bargain now.

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Now that 2019 has come to a close, taking stock of both the good and the bad can give us various lessons to take forward into 2020. I have already written a piece looking at the star performer from the FTSE 100 index last year, which you can read here.

However, it is also worth reviewing the worst performer, and seeing what we can spot to avoid when making investment choices this year.

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Firstly, it is actually quite hard to pinpoint the specific ‘worst performer’ as the FTSE 100 relegates companies that have a sharp drop in the share price (and thus the market capitalisation) down to the FTSE 250 on a quarterly basis. For example, Marks and Spencer was in the FTSE 100 at this time last year, but dropped out in Q3. Then there is the issue of whether to include dividends in the performance, or the exact date range we choose.

To keep it clean, I’ve used the numbers of the companies that were in the FTSE 100 for all of last year, to give a fair comparison. In this case, the wooden spoon goes to NMC Health (LSE: NMC). It is the largest healthcare provider in the Middle East, but also has a network of hospitals in Europe.

This time last year it was trading at 2,620p, and opened in the New Year at 1,800p. This is a fall of some 31.3%.

What happened here?

Taking the performance over an annualised period as we have done usually smooths out a bumpy road, but not so for NMC. For most of last year, the share price was fairly muted. If you had checked your portfolio containing NMC in May or September then it would have shown you a profit (assuming you bought it at the start of 2019). 

The real kick in the teeth that saw it take the booby prize came just last month. The share price dropped by almost 50% following a report about the validity of the company’s financial statements from Muddy Waters. 

Muddy Waters calls itself a “due diligence based equity research” firm, and has been in the news previously for questioning or exposing company practices. The firm claimed that NMC had potentially overpaid on acquisitions, inflated its margins and understated reported debt. The market reacted fast, with the share price yet to make a meaningful bounce back.

Should I buy it?

At the moment, I do not believe that retail investors such as myself have enough information on what is true or not. NMC called the report by Muddy Waters “false and misleading” and has opened its books for independent review. If the business has nothing to hide, then sure the current share price makes it cheap on a relative basis if the company is actually in good financial health.

However, if NMC does have problems (Muddy Waters claim it has understated debt of $320m as of 2018) then this could be a serious can of worms that could see the share price tumble further. 

On balance, without more publicly available information, buying into NMC seems more of a gamble than an investment to me at the moment.

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Jonathan Smith does not own shares in NMC Health. The Motley Fool UK owns shares of and has recommended NMC Health. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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