Over the last six months, CooperCompanies’s shares have sunk to $68.80, producing a disappointing 13.9% loss - a stark contrast to the S&P 500’s 15.7% gain. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is there a buying opportunity in CooperCompanies, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is CooperCompanies Not Exciting?
Even though the stock has become cheaper, we don't have much confidence in CooperCompanies. Here are three reasons you should be careful with COO and a stock we'd rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within healthcare, a stretched historical view may miss recent innovations or disruptive industry trends. CooperCompanies’s recent performance shows its demand has slowed as its annualized revenue growth of 7.3% over the last two years was below its five-year trend. 
2. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, CooperCompanies’s margin dropped by 8.3 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity. CooperCompanies’s free cash flow margin for the trailing 12 months was 10.2%.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
CooperCompanies historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.1%, somewhat low compared to the best healthcare companies that consistently pump out 20%+.
Final Judgment
CooperCompanies isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 15.8× forward P/E (or $68.80 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at one of our all-time favorite software stocks.
Stocks We Would Buy Instead of CooperCompanies
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