Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. Those leading the charge have not only realized strong financial performance but also propelled the broader industry’s returns as healthcare stocks have gained 22.1% over the past six months while the S&P 500 was up 12.1%.
Nevertheless, investors should tread carefully as the sector is heavily regulated, and businesses can be negatively impacted if the rules change. Keeping that in mind, here are three healthcare stocks best left ignored.
Baxter (BAX)
Market Cap: $13.44 billion
With a history dating back to 1931 and products used in over 100 countries, Baxter International (NYSE: BAX) provides essential healthcare products including dialysis therapies, IV solutions, infusion systems, surgical products, and patient monitoring technologies to hospitals and clinics worldwide.
Why Are We Out on BAX?
- Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
- Sales were less profitable over the last five years as its earnings per share fell by 8.5% annually, worse than its revenue declines
- Push for growth has led to negative returns on capital, signaling value destruction
Baxter’s stock price of $26.14 implies a valuation ratio of 12.4x forward P/E. Check out our free in-depth research report to learn more about why BAX doesn’t pass our bar.
Azenta (AZTA)
Market Cap: $1.43 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 Pass on AZTA?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.5% annually over the last two years
- Earnings per share have contracted by 28.6% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- Cash burn makes us question whether it can achieve sustainable long-term growth
At $32.65 per share, Azenta trades at 54x forward P/E. Read our free research report to see why you should think twice about including AZTA in your portfolio.
Amphastar Pharmaceuticals (AMPH)
Market Cap: $958.4 million
Founded in 1996 and known for its expertise in complex drug formulations, Amphastar Pharmaceuticals (NASDAQ: AMPH) develops and manufactures technically challenging injectable and inhalation medications, including both generic and proprietary pharmaceutical products.
Why Does AMPH Give Us Pause?
- Muted 1.2% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
- Modest revenue base of $730 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Efficiency has decreased over the last two years as its adjusted operating margin fell by 12.7 percentage points
Amphastar Pharmaceuticals is trading at $22.55 per share, or 6.9x forward P/E. Dive into our free research report to see why there are better opportunities than AMPH.
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