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, limiting growth. This has capped returns as the industry’s six-month gain of 13.5% has lagged the S&P 500’s 22.9% climb.
A cautious approach is imperative when dabbling in these businesses as regulation is another unpredictable element that can affect their earnings potential. Taking that into account, here are three healthcare stocks that may face trouble.
UFP Technologies (UFPT)
Market Cap: $1.54 billion
With expertise dating back to 1963 in specialized materials and precision manufacturing, UFP Technologies (NASDAQ: UFPT) designs and manufactures custom solutions for medical devices, sterile packaging, and other highly engineered products for healthcare and industrial applications.
Why Is UFPT Not Exciting?
- Revenue base of $588.6 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
At $200.97 per share, UFP Technologies trades at 20.1x forward P/E. Read our free research report to see why you should think twice about including UFPT in your portfolio.
Haemonetics (HAE)
Market Cap: $2.47 billion
With roots dating back to 1971 and a mission to improve blood-related healthcare, Haemonetics (NYSE: HAE) provides specialized medical devices and software for blood collection, processing, and management across plasma centers, blood banks, and hospitals.
Why Does HAE Give Us Pause?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Modest revenue base of $1.35 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Forecasted revenue decline of 3% for the upcoming 12 months implies demand will fall off a cliff
Haemonetics’s stock price of $51.35 implies a valuation ratio of 10.3x forward P/E. If you’re considering HAE for your portfolio, see our FREE research report to learn more.
Artivion (AORT)
Market Cap: $2.05 billion
Formerly known as CryoLife until its 2022 rebranding, Artivion (NYSE: AORT) develops and manufactures medical devices and preserves human tissues used in cardiac and vascular surgical procedures for patients with aortic disease.
Why Does AORT Fall Short?
- Revenue base of $405 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Poor free cash flow margin of -0.6% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Underwhelming 2.1% return on capital reflects management’s difficulties in finding profitable growth opportunities
Artivion is trading at $43.40 per share, or 62.6x forward P/E. Dive into our free research report to see why there are better opportunities than AORT.
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