Over the past six months, Privia Health’s stock price fell to $22.63. Shareholders have lost 11.9% of their capital, which is disappointing considering the S&P 500 has climbed by 11.3%. This may have investors wondering how to approach the situation.

Is now the time to buy Privia Health, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is Privia Health Not Exciting?

Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons you should be careful with PRVA and a stock we'd rather own.

1. Fewer Distribution Channels Limit its Ceiling

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 just $1.9 billion in revenue over the past 12 months, Privia Health is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

2. Mediocre Free Cash Flow Margin Limits Reinvestment Potential

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.

Privia Health has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.3%, subpar for a healthcare business.

3. Previous Growth Initiatives Have Lost Money

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Privia Health’s five-year average ROIC was negative 9.8%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

Final Judgment

Privia Health isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 26.2× forward P/E (or $22.63 per share). At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere. Let us point you toward the most entrenched endpoint security platform on the market.

Stocks We Like More Than Privia Health

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