Shareholders of Bio-Techne would probably like to forget the past six months even happened. The stock has dropped 26.9% and now trades at a new 52-week low of $58.44. This may have investors wondering how to approach the situation.

Is now the time to buy Bio-Techne, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Even with the cheaper entry price, we're swiping left on Bio-Techne for now. Here are three reasons why there are better opportunities than TECH and a stock we'd rather own.

Why Is Bio-Techne Not Exciting?

With a catalog of hundreds of thousands of specialized biological products used in laboratories worldwide, Bio-Techne (NASDAQ: TECH) develops and manufactures specialized reagents, instruments, and services that help researchers study biological processes and enable diagnostic testing and cell therapy development.

1. Slow Organic Growth Suggests Waning Demand In Core Business

We can better understand Research Tools & Consumables companies by analyzing their organic revenue. This metric gives visibility into Bio-Techne’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Bio-Techne’s organic revenue averaged 3.1% year-on-year growth. This performance slightly lagged the sector and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations.

2. 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 $1.20 billion in revenue over the past 12 months, Bio-Techne 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.

3. Shrinking Adjusted Operating Margin

Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.

Analyzing the trend in its profitability, Bio-Techne’s adjusted operating margin decreased by 5.5 percentage points over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 31.2%.

Final Judgment

Bio-Techne isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 29.3× forward price-to-earnings (or $58.44 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.

Stocks We Would Buy Instead of Bio-Techne

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