From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Players catalyzing medical advancements have benefited from elevated demand, which has supported the industry’s returns lately - over the past six months, healthcare stocks have gained 15.5%, nearly mirrorring the S&P 500.
Regardless of these results, investors must exercise caution as many businesses in this space are subject to heavy regulation that can influence their earnings potential. Taking that into account, here are three healthcare stocks we’re swiping left on.
Azenta (AZTA)
Market Cap: $1.61 billion
Serving as the guardian of some of medicine's most valuable materials, Azenta (NASDAQ: AZTA) provides biological sample management, storage, and genomic services that help pharmaceutical and biotechnology companies preserve and analyze critical research materials.
Why Do We Think AZTA Will Underperform?
- Annual sales declines of 5.5% for the past two years show its products and services struggled to connect with the market during this cycle
- Sales were less profitable over the last five years as its earnings per share fell by 18.8% annually, worse than its revenue declines
- Increased cash burn over the last five years raises questions about the return timeline for its investments
At $35.18 per share, Azenta trades at 44.4x forward P/E. Check out our free in-depth research report to learn more about why AZTA doesn’t pass our bar.
Amneal (AMRX)
Market Cap: $3.77 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 Is AMRX Not Exciting?
- 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
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Amneal’s stock price of $12.06 implies a valuation ratio of 14.5x forward P/E. If you’re considering AMRX for your portfolio, see our FREE research report to learn more.
Jazz Pharmaceuticals (JAZZ)
Market Cap: $10.13 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 Are We Hesitant About JAZZ?
- 4.7% annual revenue growth over the last two years was slower than its healthcare peers
- Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 8.7% annually
- High net-debt-to-EBITDA ratio of 5× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Jazz Pharmaceuticals is trading at $164 per share, or 7.7x forward P/E. Dive into our free research report to see why there are better opportunities than JAZZ.
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