Healthcare services company Sotera Health (NASDAQ:) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 2.6% year on year to $254.5 million. Its non-GAAP profit of $0.14 per share was 14.9% above analysts’ consensus estimates.

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“We are pleased to report a solid start to the year with mid-single digit revenue growth and strong double digit Adjusted EBITDA growth, on a constant currency basis,” said Chairman and Chief Executive Officer, Michael B. Petras,

Company Overview

With a critical role in ensuring the safety of millions of patients worldwide, Sotera Health (NASDAQGS:SHC) provides sterilization services, lab testing, and advisory services to ensure medical devices, pharmaceuticals, and food products are safe for use.

Sales Growth

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Sotera Health Company’s sales grew at a mediocre 7.2% compounded annual growth rate over the last five years. This fell short of our benchmark for the healthcare sector and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Sotera Health Company’s recent performance shows its demand has slowed as its annualized revenue growth of 5.9% over the last two years was below its five-year trend.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Sotera Health Company’s organic revenue averaged 6.4% year-on-year growth. Because this number aligns with its normal revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Sotera Health Company reported modest year-on-year revenue growth of 2.6% but beat Wall Street’s estimates by 3.1%.

Looking ahead, sell-side analysts expect revenue to grow 3.6% over the next 12 months, a slight deceleration versus the last two years. This projection is underwhelming and implies its products and services will see some demand headwinds.

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Operating Margin

Sotera Health Company has been an efficient company over the last five years. It was one of the more profitable businesses in the healthcare sector, boasting an average operating margin of 26.4%.

Looking at the trend in its profitability, Sotera Health Company’s operating margin rose by 4 percentage points over the last five years, as its sales growth gave it operating leverage. This performance was mostly driven by its recent improvements as the company’s margin has increased by 5.5 percentage points on a two-year basis.

This quarter, Sotera Health Company generated an operating profit margin of 28.4%, up 7 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sotera Health Company’s EPS grew at a remarkable 11.3% compounded annual growth rate over the last five years, higher than its 7.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Sotera Health Company’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Sotera Health Company’s operating margin expanded by 4 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Sotera Health Company reported EPS at $0.14, up from $0.13 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Sotera Health Company’s full-year EPS of $0.71 to grow 7.3%.

Key Takeaways from Sotera Health Company’s Q1 Results

We were impressed by how significantly Sotera Health Company blew past analysts’ organic revenue expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. On the other hand, its full-year EPS guidance missed. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 4.3% to $11.99 immediately after reporting.

Sure, Sotera Health Company had a solid quarter, but if we look at the bigger picture, is this stock a buy? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.