The past six months have been a windfall for IQVIA’s shareholders. The company’s stock price has jumped 50%, hitting $267.77 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now the time to buy IQVIA, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is IQVIA Not Exciting?

We’re happy investors have made money, but we’re passing on IQVIA for now. Here are three reasons you should be careful with IQV, plus one stock we’d rather own.

1. Long-Term Revenue Growth Disappoints

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, IQVIA’s 5.6% annualized revenue growth over the last five years was mediocre. This was below our standard for the healthcare sector.

2. Adjusted Operating Margin in Limbo

Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses — everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.

Analyzing the trend in its profitability, IQVIA’s adjusted operating margin might have fluctuated slightly but has generally stayed the same over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 16.9%.

3. Free Cash Flow Margin Stuck in Neutral

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, IQVIA’s margin was unchanged over the last five years, showing it couldn’t improve. Its free cash flow margin for the trailing 12 months was 12.9%.

Final Judgment

IQVIA’s business quality ultimately falls short of our standards. Following the recent rally, the stock trades at 19.6× forward P/E (or $267.77 per share). This valuation multiple is fair, but we don’t have much faith in the company. We’re fairly confident there are better investments elsewhere. Let us point you toward one of Charlie Munger’s all-time favorite businesses.

Stocks We Would Buy Instead of IQVIA

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