Personal health and wellness is one of the many secular tailwinds for healthcare companies. But financial performance has lagged recently as players offloaded surplus COVID inventories in 2023 and 2024, a headwind for overall demand. The result? Over the past six months, the industry has tumbled by 3.1%. This performance is a noticeable divergence from the S&P 500’s 10.3% return.
Investors should tread carefully as the influx of venture capital has also ushered in a new wave of competition. With that said, here are three healthcare stocks best left ignored.
Tandem Diabetes (TNDM)
Market Cap: $827.1 million
With technology that automatically adjusts insulin delivery based on continuous glucose monitoring data, Tandem Diabetes Care (NASDAQ: TNDM) develops and manufactures automated insulin delivery systems that help people with diabetes manage their blood glucose levels.
Why Are We Out on TNDM?
- Disappointing pump shipments over the past two years suggest it might have to lower prices to accelerate growth
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 21% annually
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Tandem Diabetes’s stock price of $12.39 implies a valuation ratio of 15.3x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including TNDM in your portfolio.
Chemed (CHE)
Market Cap: $6.48 billion
With a unique business model combining end-of-life care and household services, Chemed (NYSE: CHE) operates two distinct businesses: VITAS, which provides hospice care for terminally ill patients, and Roto-Rooter, which offers plumbing and water restoration services.
Why Is CHE Not Exciting?
- 4.4% annual revenue growth over the last five years was slower than its healthcare peers
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 2.7 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $446.26 per share, Chemed trades at 17.9x forward P/E. To fully understand why you should be careful with CHE, check out our full research report (it’s free).
NeoGenomics (NEO)
Market Cap: $865.5 million
Operating a network of CAP-accredited and CLIA-certified laboratories across the United States and United Kingdom, NeoGenomics (NASDAQ: NEO) provides specialized cancer diagnostic testing services, including genetic analysis, molecular testing, and pathology consultation for oncologists and healthcare providers.
Why Should You Dump NEO?
- Smaller revenue base of $689.2 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Negative returns on capital show management lost money while trying to expand the business, and its decreasing returns suggest its historical profit centers are aging
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
NeoGenomics is trading at $6.70 per share, or 28x forward P/E. If you’re considering NEO for your portfolio, see our FREE research report to learn more.
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