Integra LifeSciences’s stock price has taken a beating over the past six months, shedding 39.3% of its value and falling to $13.34 per share. This might have investors contemplating their next move.

Is there a buying opportunity in Integra LifeSciences, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think Integra LifeSciences Will Underperform?

Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons there are better opportunities than IART and a stock we'd rather own.

1. Core Business Falling Behind as Demand Declines

We can better understand Surgical Equipment & Consumables - Specialty companies by analyzing their organic revenue. This metric gives visibility into Integra LifeSciences’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, Integra LifeSciences’s organic revenue averaged 1.4% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Integra LifeSciences might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

2. Shrinking Adjusted Operating Margin

Adjusted operating margin is a key measure of profitability. Think of it as net income (the bottom line) excluding the impact of non-recurring expenses, taxes, and interest on debt - metrics less connected to business fundamentals.

Analyzing the trend in its profitability, Integra LifeSciences’s adjusted operating margin decreased by 7.7 percentage points over the last five 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 16%.

3. Free Cash Flow Margin Dropping

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Integra LifeSciences’s margin dropped by 21 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Integra LifeSciences’s free cash flow margin for the trailing 12 months was negative 2.3%.

Final Judgment

We cheer for all companies helping people live better, but in the case of Integra LifeSciences, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 5.6× forward P/E (or $13.34 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.

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