3 Healthcare Stocks We’re Skeptical Of
Personal health and wellness is one of the many secular tailwinds for healthcare companies. Players catalyzing medical advancements have benefited from elevated demand, and their momentum is only rising as the industry has posted a 38.9% gain over the past six months, beating the S&P 500 by 20.9 percentage points.
Nevertheless, investors should tread carefully as the sector is heavily regulated, and businesses can be negatively impacted if the rules change. Taking that into account, here are three healthcare stocks best left ignored.
Neogen (NEOG)
Market Cap: $3.05 billion
Founded in 1981 and operating at the intersection of food safety and animal health, Neogen (NASDAQ:NEOG) develops and manufactures diagnostic tests and related products to detect dangerous substances in food and pharmaceuticals for animal health.
Why Are We Out on NEOG?
- Sales tumbled by 3% annually over the last two years, showing market trends are working against it during this cycle
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens
At $13.99 per share, Neogen trades at 43.9x forward P/E. Dive into our free research report to see why there are better opportunities than NEOG.
Artivion (AORT)
Market Cap: $1.18 billion
Formerly known as CryoLife until its 2022 rebranding, Artivion (NYSE:AORT) develops and manufactures medical devices and preserves human tissues used in cardiac and vascular surgical procedures for patients with aortic disease.
Why Are We Hesitant About AORT?
- Smaller revenue base of $471.5 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Low returns on capital reflect management’s struggle to allocate funds effectively
Artivion is trading at $23.99 per share, or 47.6x forward P/E. Check out our free in-depth research report to learn more about why AORT doesn’t pass our bar.
NeoGenomics (NEO)
Market Cap: $2.43 billion
Operating a network of CAP-accredited and CLIA-certified laboratories across the United States and United Kingdom, NeoGenomics (NASDAQ:NEO) provides specialized cancer diagnostic testing services, including genetic analysis, molecular testing, and pathology consultation for oncologists and healthcare providers.
Why Do We Think Twice About NEO?
- Revenue base of $766.3 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Negative returns on capital show that some of its growth strategies have backfired
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
NeoGenomics’s stock price of $19.38 implies a valuation ratio of 71.4x forward P/E. If you’re considering NEO for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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