Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. But financial performance has lagged recently as players offloaded surplus COVID inventories in 2023 and 2024, a headwind for overall demand. The result? Over the past six months, the industry has tumbled by 9.8%. This performance was worse than the S&P 500’s 1.6% decline.

The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. Taking that into account, here is one healthcare stock poised to generate sustainable market-beating returns and two we’re passing on.

Two Healthcare Stocks to Sell:

Privia Health (PRVA)

Market Cap: $2.76 billion

Operating in 13 states and the District of Columbia with over 4,300 providers serving more than 4.8 million patients, Privia Health (NASDAQ: PRVA) is a technology-driven company that helps physicians optimize their practices, improve patient experiences, and transition to value-based care models.

Why Does PRVA Fall Short?

1. Revenue base of $1.74 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
2. Negative returns on capital show management lost money while trying to expand the business

At $22.74 per share, Privia Health trades at 25.5x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than PRVA.

Patterson Companies (PDCO)

Market Cap: $2.76 billion

With roots dating back to 1877 and serving over 150,000 customers across North America and the UK, Patterson Companies (NASDAQ: PDCO) is a specialty distributor that supplies dental practices and animal health professionals with equipment, consumables, pharmaceuticals, and practice management software.

Why Are We Cautious About PDCO?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Cash burn makes us question whether it can achieve sustainable long-term growth
3. Low returns on capital reflect management’s struggle to allocate funds effectively

Patterson Companies is trading at $31.79 per share, or 12.6x forward price-to-earnings. Check out our free in-depth research report to learn more about why PDCO doesn’t pass our bar.

One Healthcare Stock to Watch:

Medpace (MEDP)

Market Cap: $9.65 billion

Founded in 1992 as a scientifically-driven alternative to traditional contract research organizations, Medpace (NASDAQ: MEDP) provides outsourced clinical trial management and research services to help pharmaceutical, biotechnology, and medical device companies develop new treatments.

Why Does MEDP Stand Out?

1. Average organic revenue growth of 20.6% over the past two years demonstrates its ability to expand independently without relying on acquisitions
2. Performance over the past five years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
3. Returns on capital are growing as management capitalizes on its market opportunities

Medpace’s stock price of $314.99 implies a valuation ratio of 25.7x forward price-to-earnings. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.

Stocks We Like Even More

With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.

Put yourself in the driver’s seat by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.