From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Players catalyzing medical advancements have benefited from elevated demand, and as a result, the industry has faired somewhat better than the broader market - over the past six months, healthcare stocks have recorded a loss of 1.1% versus a 2.8% decline for the S&P 500.
Nevertheless, investors should tread carefully as the sector is heavily regulated, and businesses can be negatively impacted if the rules change. Keeping that in mind, here are three healthcare stocks that may face trouble.
Myriad Genetics (MYGN)
Market Cap: $429.2 million
Founded in 1991 as one of the pioneers in translating genetic discoveries into clinical applications, Myriad Genetics (NASDAQ: MYGN) develops genetic tests that assess disease risk, guide treatment decisions, and provide insights across oncology, women's health, and mental health.
Why Are We Out on MYGN?
- Annual revenue growth of 4.6% over the last two years was below our standards for the healthcare sector
- Negative returns on capital show that some of its growth strategies have backfired, and its falling returns suggest its earlier profit pools are drying up
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Myriad Genetics’s stock price of $4.60 implies a valuation ratio of 67.1x forward P/E. Read our free research report to see why you should think twice about including MYGN in your portfolio.
Enovis (ENOV)
Market Cap: $1.34 billion
With a focus on helping patients regain or maintain their natural motion, Enovis (NYSE: ENOV) develops and manufactures medical devices for orthopedic care, from injury prevention and pain management to joint replacement and rehabilitation.
Why Should You Dump ENOV?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 6% annually over the last five years
- Negative returns on capital show management lost money while trying to expand the business, and its decreasing returns suggest its historical profit centers are aging
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $23.37 per share, Enovis trades at 6.3x forward P/E. Dive into our free research report to see why there are better opportunities than ENOV.
Henry Schein (HSIC)
Market Cap: $8.38 billion
With a vast inventory of over 300,000 products stocked in distribution centers spanning more than 5.3 million square feet worldwide, Henry Schein (NASDAQ: HSIC) is a global distributor of healthcare products and services primarily to dental practices, medical offices, and other healthcare facilities.
Why Do We Think Twice About HSIC?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Anticipated sales growth of 4.1% for the next year implies demand will be shaky
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Henry Schein is trading at $73.01 per share, or 13.9x forward P/E. To fully understand why you should be careful with HSIC, check out our full research report (it’s free).
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