From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Those leading the charge have not only realized strong financial performance but also propelled the broader industry’s returns as healthcare stocks have gained 33.4% over the past six months while the S&P 500 was up 13.5%.
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 we’re steering clear of.
Teleflex (TFX)
Market Cap: $5.33 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 Are We Bearish on TFX?
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Sales were less profitable over the last five years as its earnings per share fell by 6.5% annually, worse than its revenue declines
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Teleflex’s stock price of $125.70 implies a valuation ratio of 13.6x forward P/E. Check out our free in-depth research report to learn more about why TFX doesn’t pass our bar.
Enovis (ENOV)
Market Cap: $1.05 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 Sell ENOV?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Earnings per share fell by 9.5% annually over the last five years while its revenue was flat, showing each sale was less profitable
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $18.26 per share, Enovis trades at 5x forward P/E. Dive into our free research report to see why there are better opportunities than ENOV.
Ocular Therapeutix (OCUL)
Market Cap: $1.66 billion
Pioneering a drug delivery platform that can eliminate the need for monthly eye injections, Ocular Therapeutix (NASDAQ:OCUL) develops sustained-release treatments for eye diseases using its proprietary ELUTYX bioresorbable hydrogel technology that gradually releases medication.
Why Are We Out on OCUL?
- Sales tumbled by 7.7% annually over the last two years, showing market trends are working against it during this cycle
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 7.5% annually while its revenue grew
- Free cash flow margin shrank by 371.3 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Ocular Therapeutix is trading at $7.68 per share, or 29.5x forward price-to-sales. Check out our free in-depth research report to learn more about why OCUL doesn’t pass our bar.
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