Since September 2020, the S&P 500 has delivered a total return of 85.4%. But one standout stock has more than doubled the market - over the past five years, Cardinal Health has surged 198% to $149.15 per share. Its momentum hasn’t stopped as it’s also gained 15.5% in the last six months, beating the S&P by 5.8%.

Is now still a good time to buy CAH? Or are investors being too optimistic? Find out in our full research report, it’s free.

Why Does Cardinal Health Spark Debate?

Operating as a critical link in the healthcare supply chain since 1979, Cardinal Health (NYSE: CAH) distributes pharmaceuticals and manufactures medical products for hospitals, pharmacies, and healthcare providers across the global healthcare supply chain.

Two Things to Like:

1. Economies of Scale Give It Negotiating Leverage with Suppliers

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 $222.6 billion in revenue over the past 12 months, Cardinal Health is one of the most scaled enterprises in healthcare. This is particularly important because healthcare distribution & related services companies are volume-driven businesses due to their low margins.

2. Projected Revenue Growth Is Remarkable

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.

Over the next 12 months, sell-side analysts expect Cardinal Health’s revenue to rise by 11.9%, an improvement versus its 7.8% annualized growth for the past five years. This projection is particularly noteworthy for a company of its scale and suggests its newer products and services will fuel better top-line performance.

One Reason to be Careful:

Lackluster Revenue Growth

Long-term growth is the most important, but within healthcare, a stretched historical view may miss new innovations or demand cycles. Cardinal Health’s recent performance shows its demand has slowed as its annualized revenue growth of 4.2% over the last two years was below its five-year trend.

Final Judgment

Cardinal Health’s merits more than compensate for its flaws, and with its shares beating the market recently, the stock trades at 16.2× forward P/E (or $149.15 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.

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