Amidst major macroeconomic headwinds, businesses of all sectors are expected to face considerable challenges this year. The medical industry is no exception. Therefore, I think it might be ideal to avoid Vapotherm, Inc. (VAPO) and Neptune Wellness Solutions, Inc. (NEPT), considering their weak fundamentals. These stocks have declined substantially over the past months.
The healthcare ecosystem is rife with competing interests and forces, from rapidly evolving technologies and shifting government policy to the complex regulatory environment and needs of consumers, payors and providers. According to Verified Market Research, the global healthcare market will reach $665.37 billion by 2028.
However, healthcare systems endured a challenging last year, with over 70% of systems posting negative operating margins primarily due to labor and supply chain shortages and the performance of the equity and bond markets.
Although balance sheets and liquidity are currently healthy due to solid performances and liquidity posted in 2021, several factors might increase pressure on operating margins this year as well.
Also, inflation, rising labor costs and staffing challenges are likely to persist in the coming months, although at a moderated level as wage growth pressures subside with the projected overall economic slowdown.
Moreover, abuse and misuse of consumer healthcare products by consumers are expected to affect the growth rate of the global consumer healthcare market. This has led government entities to impose various rules that may impact the consumer healthcare industry.
Take a look at the stocks mentioned above:
Vapotherm, Inc. (VAPO)
VAPO is a medical technology company that focuses on the development and commercialization of proprietary high velocity therapy products used to treat patients of various ages suffering from respiratory distress in the United States and internationally.
VAPO’s trailing-12-month gross profit margin of 27.23% is 51.1% lower than the 55.65% industry average.
VAPO’s net revenue decreased 16.1% year-over-year to $18.66 million during the fourth quarter that ended December 31, 2022. Its adjusted EBITDA declined 51.3% year-over-year to negative $65.2 million. The company’s net loss increased 15.5% year-over-year to $21.56 million, whereas its gross profit fell 34.2% year-over-year to $5.12 million.
Analysts expect VAPO’s revenue to decline 15.2% year-over-year to $18.35 million for the fiscal first quarter that ended March 2023. Its EPS is expected to be negative $0.44 for the same quarter. Also, the stock failed to surpass the EPS estimates in three of the trailing four quarters, which is disappointing.
The stock has declined 90.7% over the past year to close its last trading session at $0.51. It also has a 24-month beta of 2.22.
VAPO’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
VAPO is also graded an F in Quality and a D in Momentum and Stability. It is ranked nine among ten stocks in the Medical - Consumer Goods industry.
In addition to the POWR Ratings stated above, VAPO’s rating for Growth, Value, and Sentiment can be seen here.
Neptune Wellness Solutions Inc. (NEPT)
Headquartered in Laval, Canada, NEPT operates as a diversified and fully integrated health and wellness company.
NEPT’s trailing-12-month asset turnover ratio of 0.52x is 39.5% lower than the 0.86x industry average. Its trailing-12-month CAPEX/Sales of 2.90% is 8.3% lower than the 3.16% industry average.
During the fiscal third quarter that ended December 31, 2022, NEPT’s total revenues decreased 98.1% year-over-year to $12.21 million. Its net loss came in at $497.45 thousand, whereas its gross profit came in at $1.88 million. Also, its income per share attributable to common shareholders of the company came in at $0.06.
NEPT’s revenue is expected to decline 19.2% year-over-year to negative $9.31 million for the fiscal fourth quarter that ended March 2023.
The stock has plunged 89.3% over the past year to close the last trading session at $0.67. The stocks have a 24-month beta of 1.24.
It’s no surprise that NEPT has an overall rating of D, which translates to a Sell in our POWR Ratings system.
NEPT also has a D grade for Quality, Sentiment, and Stability. It is ranked last in the same industry.
Click here to see the POWR Ratings of NEPT (Growth, Value, and Momentum).
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VAPO shares were trading at $0.54 per share on Monday morning, up $0.03 (+5.06%). Year-to-date, VAPO has declined -80.00%, versus a 8.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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