Although STERIS (currently trading at $259.38 per share) has gained 7.1% over the last six months, it has trailed the S&P 500’s 14.4% return during that period. This may have investors wondering how to approach the situation.

Is now the time to buy STERIS, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.

Why Is STERIS Not Exciting?

We don't have much confidence in STERIS. Here is one reason why STE doesn't excite us and a stock we'd rather own.

Previous Growth Initiatives Haven’t Impressed

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).

STERIS historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.9%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.

Final Judgment

STERIS isn’t a terrible business, but it isn’t one of our picks. With its shares lagging the market recently, the stock trades at 24.4× forward P/E (or $259.38 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better investments elsewhere. We’d suggest looking at one of our all-time favorite software stocks.

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