Personal health and wellness is one of the many secular tailwinds for healthcare companies. 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 13.6%. This performance is a stark contrast from the S&P 500’s 3.1% gain.
Investors should tread carefully as the influx of venture capital has also ushered in a new wave of competition. On that note, here are three healthcare stocks we’re swiping left on.
Artivion (AORT)
Market Cap: $1.43 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 Is AORT Risky?
- Annual revenue growth of 7.2% over the last five years was below our standards for the healthcare sector
- Smaller revenue base of $390.1 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Low returns on capital reflect management’s struggle to allocate funds effectively
Artivion is trading at $30.40 per share, or 45.2x forward P/E. If you’re considering AORT for your portfolio, see our FREE research report to learn more.
Clover Health (CLOV)
Market Cap: $1.64 billion
Founded in 2014 to improve healthcare for America's seniors through technology, Clover Health (NASDAQ:CLOV) provides Medicare Advantage plans for seniors with a focus on affordable care and uses its proprietary Clover Assistant software to help physicians manage patient care.
Why Are We Cautious About CLOV?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 28.7% annually over the last two years
- Weak customer trends over the past two years suggest it may need to improve its products, pricing, or go-to-market strategy
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
Clover Health’s stock price of $3.27 implies a valuation ratio of 43.9x forward EV-to-EBITDA. To fully understand why you should be careful with CLOV, check out our full research report (it’s free).
Jazz Pharmaceuticals (JAZZ)
Market Cap: $7.04 billion
Originally founded in 2003 and now headquartered in Ireland following a 2012 tax inversion merger, Jazz Pharmaceuticals (NASDAQGS:JAZZ) develops and markets medicines for sleep disorders, epilepsy, and cancer, with a focus on treatments for patients with limited therapeutic options.
Why Does JAZZ Worry Us?
- Muted 4.3% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 6.7 percentage points
- Underwhelming 5.3% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up
At $114 per share, Jazz Pharmaceuticals trades at 5x forward P/E. Dive into our free research report to see why there are better opportunities than JAZZ.
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