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 11.9%. This performance is a stark contrast from the S&P 500’s 4.3% gain.
While some businesses have durable competitive advantages that enable them to grow consistently, the odds aren’t great for the ones we’re analyzing today. On that note, here are three healthcare stocks that may face trouble.
Omnicell (OMCL)
Market Cap: $1.32 billion
Driven by the vision of an "Autonomous Pharmacy" with zero medication errors, Omnicell (NASDAQ: OMCL) provides medication management automation and adherence tools that help healthcare systems and pharmacies reduce errors and improve efficiency.
Why Are We Out on OMCL?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 5.4% annually over the last two years
- Revenue base of $1.14 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Earnings per share fell by 7.6% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
Omnicell’s stock price of $28.20 implies a valuation ratio of 15.3x forward P/E. To fully understand why you should be careful with OMCL, check out our full research report (it’s free).
CVS Health (CVS)
Market Cap: $78.24 billion
With over 9,000 retail pharmacy locations serving as neighborhood health destinations across America, CVS Health (NYSE: CVS) operates retail pharmacies, provides pharmacy benefit management services, and offers health insurance through its Aetna subsidiary.
Why Do We Think Twice About CVS?
- Annual sales growth of 7% over the last two years lagged behind its healthcare peers as its large revenue base made it difficult to generate incremental demand
- Estimated sales growth of 2.4% for the next 12 months implies demand will slow from its two-year trend
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 2.9% annually while its revenue grew
CVS Health is trading at $61.87 per share, or 10x forward P/E. Dive into our free research report to see why there are better opportunities than CVS.
DaVita (DVA)
Market Cap: $11.42 billion
With over 2,600 dialysis centers across the United States and a presence in 13 countries, DaVita (NYSE: DVA) operates a network of dialysis centers providing treatment and care for patients with chronic kidney disease and end-stage kidney disease.
Why Does DVA Fall Short?
- Sizable revenue base leads to growth challenges as its 2.5% annual revenue increases over the last five years fell short of other healthcare companies
- Flat treatments over the past two years indicate demand is soft and that the company may need to revise its strategy
- Anticipated sales growth of 4.6% for the next year implies demand will be shaky
At $150.95 per share, DaVita trades at 13.1x forward P/E. If you’re considering DVA for your portfolio, see our FREE research report to learn more.
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