3 Reasons to Avoid SHC and 1 Stock to Buy Instead

September 11, 2025 at 00:01 AM EDT

SHC Cover Image

Over the past six months, Sotera Health Company has been a great trade, beating the S&P 500 by 20.9%. Its stock price has climbed to $15.74, representing a healthy 38.3% increase. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is there a buying opportunity in Sotera Health Company, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is Sotera Health Company Not Exciting?

We’re glad investors have benefited from the price increase, but we don't have much confidence in Sotera Health Company. Here are three reasons why SHC doesn't excite us and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Sotera Health Company’s 7.3% annualized revenue growth over the last five years was mediocre. This was below our standard for the healthcare sector.

2. 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 $1.12 billion in revenue over the past 12 months, Sotera Health Company 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.

3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Sotera Health Company 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 1.1%, subpar for a healthcare business. The divergence from its good adjusted operating margin stems from its capital-intensive business model, which requires Sotera Health Company to make large cash investments in working capital and capital expenditures.

Sotera Health Company Trailing 12-Month Free Cash Flow Margin

Final Judgment

Sotera Health Company isn’t a terrible business, but it isn’t one of our picks. With its shares outperforming the market lately, the stock trades at 20× forward P/E (or $15.74 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. Let us point you toward an all-weather company that owns household favorite Taco Bell.

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