Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. But financial performance has lagged recently as players offloaded surplus COVID inventories in 2023 and 2024, a headwind for overall demand. The result? Over the past six months, the industry’s 13.5% return has trailed the S&P 500 by 9.4 percentage points.
Investors should tread carefully as the influx of venture capital has also ushered in a new wave of competition. Keeping that in mind, here are three healthcare stocks we’re swiping left on.
NeoGenomics (NEO)
Market Cap: $1.35 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 Is NEO Risky?
- Revenue base of $689.2 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Negative returns on capital show management lost money while trying to expand the business, and its shrinking returns suggest its past profit sources are losing steam
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $10.75 per share, NeoGenomics trades at 78x forward P/E. If you’re considering NEO for your portfolio, see our FREE research report to learn more.
IQVIA (IQV)
Market Cap: $37.38 billion
Created from the 2016 merger of Quintiles (a clinical research organization) and IMS Health (a healthcare data specialist), IQVIA (NYSE: IQV) provides clinical research services, data analytics, and technology solutions to help pharmaceutical companies develop and market medications more effectively.
Why Does IQV Give Us Pause?
- Annual sales growth of 3.4% over the last two years lagged behind its healthcare peers as its large revenue base made it difficult to generate incremental demand
- Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 3.5 percentage points
IQVIA is trading at $219.91 per share, or 17.8x forward P/E. Read our free research report to see why you should think twice about including IQV in your portfolio.
10x Genomics (TXG)
Market Cap: $1.66 billion
Founded in 2012 by scientists seeking to overcome limitations in traditional biological research methods, 10x Genomics (NASDAQ: TXG) develops instruments, consumables, and software that enable researchers to analyze biological systems at single-cell resolution and spatial context.
Why Does TXG Worry Us?
- 6.5% annual revenue growth over the last two years was slower than its healthcare peers
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Negative returns on capital show that some of its growth strategies have backfired
10x Genomics’s stock price of $13.26 implies a valuation ratio of 2.8x forward price-to-sales. Check out our free in-depth research report to learn more about why TXG doesn’t pass our bar.
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