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% over the past six months, topping the S&P 500 by 20.7 percentage points.
Nevertheless, investors should tread carefully as the sector is heavily regulated, and businesses can be negatively impacted if the rules change. Taking that into account, here are three healthcare stocks that may face trouble.
Teleflex (TFX)
Market Cap: $5.34 billion
With a portfolio spanning from vascular access catheters to minimally invasive surgical tools, Teleflex (NYSE:TFX) designs, manufactures, and supplies single-use medical devices used in critical care and surgical procedures across hospitals worldwide.
Why Should You Sell TFX?
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 6.5% annually, worse than its revenue
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $126.07 per share, Teleflex trades at 13.6x forward P/E. If you’re considering TFX for your portfolio, see our FREE research report to learn more.
LifeStance Health Group (LFST)
Market Cap: $4.55 billion
With over 6,600 licensed mental health professionals treating more than 880,000 patients annually, LifeStance Health (NASDAQ:LFST) provides outpatient mental health services through a network of clinicians offering psychiatric evaluations, psychological testing, and therapy across 33 states.
Why Are We Hesitant About LFST?
- Subscale operations are evident in its revenue base of $1.58 billion, meaning it has fewer distribution channels than its larger rivals
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 3% for the last five years
- Negative returns on capital show that some of its growth strategies have backfired
LifeStance Health Group’s stock price of $11.91 implies a valuation ratio of 29.1x forward P/E. Read our free research report to see why you should think twice about including LFST in your portfolio.
Repligen (RGEN)
Market Cap: $10 billion
With over 13 strategic acquisitions since 2012 to build its comprehensive bioprocessing portfolio, Repligen (NASDAQ:RGEN) develops and manufactures specialized technologies that improve the efficiency and flexibility of biological drug manufacturing processes.
Why Is RGEN Risky?
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 16.2 percentage points
- Earnings per share have dipped by 3.8% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Repligen is trading at $178.88 per share, or 84.9x forward P/E. Check out our free in-depth research report to learn more about why RGEN doesn’t pass our bar.
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