Personal health and wellness is one of the many secular tailwinds for healthcare companies. 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 13.8%. This drop is a far cry from the S&P 500’s 5.3% ascent.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. On that note, here is one healthcare stock poised to generate sustainable market-beating returns and two best left ignored.
Two Healthcare Stocks to Sell:
West Pharmaceutical Services (WST)
Market Cap: $17.06 billion
Founded in 1923 and serving as a critical link in the pharmaceutical supply chain, West Pharmaceutical Services (NYSE: WST) manufactures specialized packaging, containment systems, and delivery devices for injectable drugs and healthcare products.
Why Does WST Fall Short?
- Sales trends were unexciting over the last two years as its 1.6% annual growth was below the typical healthcare company
- Efficiency has decreased over the last five years as its adjusted operating margin fell by 3.9 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
West Pharmaceutical Services is trading at $230.30 per share, or 35.4x forward P/E. Read our free research report to see why you should think twice about including WST in your portfolio.
Bio-Techne (TECH)
Market Cap: $7.82 billion
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.
Why Do We Steer Clear of TECH?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Modest revenue base of $1.22 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Free cash flow margin shrank by 12 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $50.42 per share, Bio-Techne trades at 24.1x forward P/E. Dive into our free research report to see why there are better opportunities than TECH.
One Healthcare Stock to Watch:
BioMarin Pharmaceutical (BMRN)
Market Cap: $11.65 billion
Pioneering treatments for conditions that often had no previous therapeutic options, BioMarin Pharmaceutical (NASDAQ: BMRN) develops and commercializes therapies that address the root causes of rare genetic disorders, particularly those affecting children.
Why Do We Like BMRN?
- Market share has increased this cycle as its 17.1% annual revenue growth over the last two years was exceptional
- Incremental sales over the last five years have been highly profitable as its earnings per share increased by 22.2% annually, topping its revenue gains
- Free cash flow margin jumped by 13.6 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
BioMarin Pharmaceutical’s stock price of $60.80 implies a valuation ratio of 13.7x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
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