STAAR Surgical trades at $27.29 per share and has stayed right on track with the overall market, gaining 8.1% over the last six months. At the same time, the S&P 500 has returned 6.4%.
Is there a buying opportunity in STAAR Surgical, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think STAAR Surgical Will Underperform?
We don't have much confidence in STAAR Surgical. Here are three reasons we avoid STAA and a stock we'd rather own.
1. Revenue Tumbling Downwards
Long-term growth is the most important, but within healthcare, a stretched historical view may miss new innovations or demand cycles. STAAR Surgical’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 13.8% over the last two years.
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, STAAR Surgical’s margin dropped by 29.9 percentage points over the last five years. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the trend continues, it could signal it’s in the middle of a big investment cycle. STAAR Surgical’s free cash flow margin for the trailing 12 months was negative 16.7%.
3. New Investments Fail to Bear Fruit as ROIC Declines
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, STAAR Surgical’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
STAAR Surgical falls short of our quality standards. That said, the stock currently trades at 48.7× forward P/E (or $27.29 per share). This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere. We’d suggest looking at a top digital advertising platform riding the creator economy.
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