From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Shareholders who bet on the industry have been rewarded lately as healthcare stocks have returned 10.8% over the past six months, topping the S&P 500 by 4.1 percentage points.
Although these businesses have produced results, only a handful will thrive over the long term as the influx of venture capital has ushered in a new wave of competition. Taking that into account, here are three healthcare stocks that may face trouble.
Mettler-Toledo (MTD)
Market Cap: $27.96 billion
With roots dating back to the precision balance innovations of Swiss engineer Erhard Mettler, Mettler-Toledo (NYSE:MTD) manufactures precision weighing instruments, analytical equipment, and product inspection systems used in laboratories, industrial settings, and food retail.
Why Does MTD Give Us Pause?
- Annual revenue growth of 3.1% over the last two years was below our standards for the healthcare sector
- 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
- Diminishing returns on capital suggest its earlier profit pools are drying up
Mettler-Toledo’s stock price of $1,376 implies a valuation ratio of 29.1x forward P/E. Check out our free in-depth research report to learn more about why MTD doesn’t pass our bar.
Revvity (RVTY)
Market Cap: $11.08 billion
Formerly known as PerkinElmer until its rebranding in 2023, Revvity (NYSE:RVTY) provides health science technologies and services that support the complete workflow from discovery to development and diagnosis to cure.
Why Should You Dump RVTY?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Inability to adjust its cost structure while its revenue declined over the last five years led to a 7.1 percentage point drop in the company’s adjusted operating margin
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 9.4% annually, worse than its revenue
Revvity is trading at $97.73 per share, or 17.6x forward P/E. Read our free research report to see why you should think twice about including RVTY in your portfolio.
Royalty Pharma (RPRX)
Market Cap: $19.42 billion
Pioneering a unique business model in the pharmaceutical industry since 1996, Royalty Pharma (NASDAQ:RPRX) acquires rights to receive portions of sales from successful biopharmaceutical products, providing funding to drug developers without conducting research itself.
Why Are We Hesitant About RPRX?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Smaller revenue base of $2.38 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
At $44.45 per share, Royalty Pharma trades at 8.7x forward P/E. Dive into our free research report to see why there are better opportunities than RPRX.
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