Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. Those leading the charge have not only realized strong financial performance but also propelled the broader industry’s returns as healthcare stocks have gained 17.4% over the past six months while the S&P 500 was up 9.6%.
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. Keeping that in mind, here are three healthcare stocks that may face trouble.
DaVita (DVA)
Market Cap: $7.57 billion
With over 2,600 dialysis centers across the United States and a presence in 13 countries, DaVita (NYSE: DVA) operates a network of dialysis centers providing treatment and care for patients with chronic kidney disease and end-stage kidney disease.
Why Do We Think Twice About DVA?
- Annual sales growth of 2.9% over the last five years lagged behind its healthcare peers as its large revenue base made it difficult to generate incremental demand
- Flat treatments over the past two years indicate demand is soft and that the company may need to revise its strategy
- Estimated sales growth of 3.7% for the next 12 months implies demand will slow from its two-year trend
DaVita’s stock price of $107.24 implies a valuation ratio of 8.6x forward P/E. Read our free research report to see why you should think twice about including DVA in your portfolio.
Amneal (AMRX)
Market Cap: $4.44 billion
Founded in 2002 and growing into one of America's largest generic drug producers, Amneal Pharmaceuticals (NASDAQ: AMRX) develops, manufactures, and distributes generic medicines, specialty branded drugs, biosimilars, and injectable products for the U.S. healthcare market.
Why Are We Cautious About AMRX?
- 1.9 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
- ROIC of 4.1% reflects management’s challenges in identifying attractive investment opportunities
Amneal is trading at $14.18 per share, or 16.5x forward P/E. Check out our free in-depth research report to learn more about why AMRX doesn’t pass our bar.
Novavax (NVAX)
Market Cap: $1.53 billion
Pioneering a nanoparticle technology that mimics the molecular structure of disease pathogens, Novavax (NASDAQ: NVAX) develops and commercializes protein-based vaccines for infectious diseases, with a primary focus on its COVID-19 vaccine and combination respiratory vaccine candidates.
Why Are We Wary of NVAX?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Projected sales decline of 46.1% for the next 12 months points to an even tougher demand environment ahead
- Free cash flow margin shrank by 73.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $9.42 per share, Novavax trades at 2.6x forward price-to-sales. Dive into our free research report to see why there are better opportunities than NVAX.
Stocks We Like More
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