3 healthcare stocks we keep off our radar
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 31.5% gain over the past six months, beating the S&P 500 by 24.7 percentage points.
Nevertheless, investors should tread carefully as the sector is heavily regulated, and businesses can be negatively impacted if the rules change. On that note, here are three healthcare stocks we’re steering clear of.
Thermo Fisher (TMO)
Market Cap: $249.1 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 Give Us Pause?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 3.9% for the last five years
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Flat earnings per share over the last five years lagged its peers
At $676.39 per share, Thermo Fisher trades at 25.1x forward P/E. To fully understand why you should be careful with TMO, check out our full research report (it’s free).
Envista (NVST)
Market Cap: $3.79 billion
Uniting more than 30 trusted brands including Nobel Biocare, Ormco, and DEXIS under one corporate umbrella, Envista Holdings (NYSE:NVST) is a global dental products company that provides equipment, consumables, and specialized technologies for dental professionals.
Why Should You Sell NVST?
- 3.4% annual revenue growth over the last five years was slower than its healthcare peers
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 7% annually
- Push for growth has led to negative returns on capital, signaling value destruction, and its decreasing returns suggest its historical profit centers are aging
Envista’s stock price of $23.61 implies a valuation ratio of 15.3x forward P/E. Read our free research report to see why you should think twice about including NVST in your portfolio.
Inspire Medical Systems (INSP)
Market Cap: $2.06 billion
Offering an alternative for the millions who struggle with traditional CPAP machines, Inspire Medical Systems (NYSE:INSP) develops and sells an implantable neurostimulation device that treats obstructive sleep apnea by stimulating nerves to keep airways open during sleep.
Why Are We Cautious About INSP?
- Smaller revenue base of $898.7 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Forecasted revenue decline of 3.4% for the upcoming 12 months implies demand will fall off a cliff
Inspire Medical Systems is trading at $71.20 per share, or 53.4x forward P/E. If you’re considering INSP for your portfolio, see our FREE research report to learn more.
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