From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. But speed bumps such as inventory destockings have persisted in the wake of COVID-19, and over the past six months, the industry has pulled back by 8.6%. This drop was discouraging since the S&P 500 held steady.
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 passing on.
STERIS (STE)
Market Cap: $23.68 billion
With a mission critical role in preventing healthcare-associated infections, STERIS (NYSE: STE) provides infection prevention products, sterilization services, and medical equipment that help healthcare facilities and life science companies maintain sterile environments.
Why Do We Think Twice About STE?
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
At $240.74 per share, STERIS trades at 24.1x forward P/E. Dive into our free research report to see why there are better opportunities than STE.
Avantor (AVTR)
Market Cap: $9.21 billion
With roots dating back to 1904 and embedded in virtually every stage of scientific research and production, Avantor (NYSE: AVTR) provides mission-critical products, materials, and services to customers in biopharma, healthcare, education, and advanced technology industries.
Why Is AVTR Not Exciting?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Adjusted operating margin declined by 3 percentage points over the last two years as its sales cratered
Avantor’s stock price of $13.62 implies a valuation ratio of 12.3x forward P/E. Check out our free in-depth research report to learn more about why AVTR doesn’t pass our bar.
ANI Pharmaceuticals (ANIP)
Market Cap: $1.26 billion
With a diverse portfolio of 116 pharmaceutical products and a growing rare disease platform, ANI Pharmaceuticals (NASDAQ: ANIP) develops, manufactures, and markets branded and generic prescription pharmaceuticals, with a focus on rare disease treatments.
Why Does ANIP Give Us Pause?
- Smaller revenue base of $674.1 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 7 percentage points
- Negative returns on capital show that some of its growth strategies have backfired
ANI Pharmaceuticals is trading at $62.78 per share, or 9.8x forward P/E. Dive into our free research report to see why there are better opportunities than ANIP.
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