Over the last six months, Danaher’s shares have sunk to $186.35, producing a disappointing 9.1% loss - a stark contrast to the S&P 500’s 18.6% gain. This may have investors wondering how to approach the situation.
Is now the time to buy Danaher, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Danaher Not Exciting?
Even though the stock has become cheaper, we don't have much confidence in Danaher. Here are three reasons there are better opportunities than DHR and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Danaher’s sales grew at a mediocre 4.9% compounded annual growth rate over the last five years. This fell short of our benchmark for the healthcare sector.
2. Core Business Falling Behind as Demand Declines
Investors interested in Research Tools & Consumables companies should track organic revenue in addition to reported revenue. This metric gives visibility into Danaher’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Danaher’s organic revenue averaged 3.4% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Danaher might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
3. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Danaher’s margin dropped by 5.5 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Danaher’s free cash flow margin for the trailing 12 months was 20.2%.
Final Judgment
Danaher isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 23× forward P/E (or $186.35 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. Let us point you toward the Amazon and PayPal of Latin America.
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