Personal health and wellness is one of the many secular tailwinds for healthcare companies. Despite the rosy long-term prospects, short-term headwinds such as COVID inventory destocking have harmed the industry’s returns - over the past six months, healthcare stocks have collectively shed 12.7%. This performance was worse than the S&P 500’s 7.5% fall.
Investors should tread carefully as the influx of venture capital has also ushered in a new wave of competition. Taking that into account, here are three healthcare stocks best left ignored.
Thermo Fisher (TMO)
Market Cap: $162.9 billion
With over 14,000 sales personnel and a portfolio spanning more than 2,500 technology manufacturers, Thermo Fisher Scientific (NYSE: TMO) provides scientific equipment, reagents, consumables, software, and laboratory services to pharmaceutical, biotech, academic, and healthcare customers worldwide.
Why Does TMO Fall Short?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 10 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $431 per share, Thermo Fisher trades at 18.2x forward price-to-earnings. Check out our free in-depth research report to learn more about why TMO doesn’t pass our bar.
Surgery Partners (SGRY)
Market Cap: $2.69 billion
With more than 180 locations across 33 states serving as alternatives to traditional hospital settings, Surgery Partners (NASDAQ: SGRY) operates a national network of outpatient surgical facilities including ambulatory surgery centers and short-stay surgical hospitals.
Why Are We Cautious About SGRY?
- Disappointing unit sales over the past two years indicate demand is soft and that the company may need to revise its strategy
- 4.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Surgery Partners is trading at $20.91 per share, or 20.4x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than SGRY.
Supernus Pharmaceuticals (SUPN)
Market Cap: $1.72 billion
With a diverse portfolio of eight FDA-approved medications targeting neurological conditions, Supernus Pharmaceuticals (NASDAQ: SUPN) develops and markets treatments for central nervous system disorders including epilepsy, ADHD, Parkinson's disease, and migraine.
Why Should You Dump SUPN?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Subscale operations are evident in its revenue base of $661.8 million, meaning it has fewer distribution channels than its larger rivals
- Estimated sales decline of 5.5% for the next 12 months implies an even more challenging demand environment
Supernus Pharmaceuticals’s stock price of $31.20 implies a valuation ratio of 16x forward price-to-earnings. If you’re considering SUPN for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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