LifeStance Health Group trades at $6.18 per share and has stayed right on track with the overall market, gaining 8.9% over the last six months. At the same time, the S&P 500 has returned 13.7%.

Is there a buying opportunity in LifeStance Health Group, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.

Why Is LifeStance Health Group Not Exciting?

We don't have much confidence in LifeStance Health Group. Here are three reasons there are better opportunities than LFST and a stock we'd rather own.

1. Fewer Distribution Channels Limit its Ceiling

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $1.37 billion in revenue over the past 12 months, LifeStance Health Group is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

2. Breakeven Free Cash Flow Limits Reinvestment Potential

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

LifeStance Health Group broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.

3. Previous Growth Initiatives Have Lost Money

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

LifeStance Health Group’s five-year average ROIC was negative 8.7%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

Final Judgment

LifeStance Health Group isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 27× forward P/E (or $6.18 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at one of our top software and edge computing picks.

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