Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. Shareholders who bet on the industry have been rewarded lately as healthcare stocks have returned 37.8% over the past six months, topping the S&P 500 by 33.6 percentage points.
Although these businesses have produced results, only a handful will thrive over the long term as the influx of venture capital has ushered in a new wave of competition. On that note, here are three healthcare stocks we’re passing on.
CooperCompanies (COO)
Market cap: $12.25 billion
With a history dating back to 1958 and a portfolio spanning two distinct healthcare segments, Cooper Companies (NASDAQ: COO) develops and manufactures medical devices focused on vision care through contact lenses and women's health including fertility products and services.
Why Does COO Fall Short?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Estimated sales growth of 2.9% for the next 12 months implies demand will slow from its two-year trend
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
CooperCompanies’s stock price of $64.40 implies a valuation ratio of 13.3x forward P/E. Check out our free in-depth research report to learn more about why COO doesn’t pass our bar.
LeMaitre (LMAT)
Market cap: $2.01 billion
Founded in 1983 and named after a pioneering vascular surgeon, LeMaitre Vascular (NASDAQGM:LMAT) develops and manufactures specialized medical devices used by vascular surgeons to treat peripheral vascular disease and other circulatory conditions.
Why Are We Wary of LMAT?
- Modest revenue base of $269.4 million gives it less fixed cost leverage and fewer distribution channels than larger companies
LeMaitre is trading at $78.75 per share, or 25.6x forward P/E. To fully understand why you should be careful with LMAT, check out our full research report (it’s free).
Surgery Partners (SGRY)
Market cap: $3.00 billion
With more than 180 locations across 33 states serving as alternatives to traditional hospital settings, Surgery Partners (NASDAQ: SGRY) operates a national network of outpatient surgical facilities including ambulatory surgery centers and short-stay surgical hospitals.
Why Is SGRY Not Exciting?
- Underwhelming unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Forecasted revenue decline of 14.4% for the upcoming 12 months implies demand will fall off a cliff
- High net-debt-to-EBITDA ratio of 7× could force the company to raise capital on unfavorable terms if market conditions deteriorate
At $23.18 per share, Surgery Partners trades at 96.6x forward P/E. Check out our free in-depth research report to learn more about why SGRY doesn’t pass our bar.
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