From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. But speed bumps such as inventory destockings have persisted in the wake of COVID-19, and over the past six months, the industry has pulled back by 6.3%. This drawdown is a far cry from the S&P 500’s 6.2% ascent.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory 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.
Market Cap: $2.82 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 Are We Hesitant About SGRY?
-
Underwhelming unit sales over the past two years suggest it might have to lower prices to accelerate growth
-
6 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
-
7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $22.15 per share, Surgery Partners trades at 20.3x forward P/E. If you’re considering SGRY for your portfolio, see our FREE research report to learn more.
Market Cap: $480.1 million
Pioneering what scientists call “HiFi long-read sequencing,” recognized as Nature Methods’ method of the year for 2022, Pacific Biosciences (NASDAQ:PACB) develops advanced DNA sequencing systems that enable scientists and researchers to analyze genomes with unprecedented accuracy and completeness.
Why Should You Dump PACB?
-
Sales trends were unexciting over the last two years as its 6.6% annual growth was below the typical healthcare company
-
Free cash flow margin shrank by 29.9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
-
Short cash runway increases the probability of a capital raise that dilutes existing shareholders
PacBio’s stock price of $1.60 implies a valuation ratio of 3x forward price-to-sales. Read our free research report to see why you should think twice about including PACB in your portfolio, it’s free.
Market Cap: $16.58 billion
link