Solventum has had an impressive run over the past six months as its shares have beaten the S&P 500 by 15.9%. The stock now trades at $74.24, marking a 24.9% gain. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in Solventum, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
We’re glad investors have benefited from the price increase, but we're sitting this one out for now. Here are three reasons why SOLV doesn't excite us and a stock we'd rather own.
Why Do We Think Solventum Will Underperform?
Founded in 1985, Solventum (NYSE:SOLV) develops, manufactures, and commercializes a portfolio of healthcare products and services addressing critical customer and therapeutic patient needs.
1. Slow Organic Growth Suggests Waning Demand In Core Business
In addition to reported revenue, organic revenue is a useful data point for analyzing Surgical Equipment & Consumables - Diversified companies. This metric gives visibility into Solventum’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Solventum’s organic revenue averaged 1.2% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations. 
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Solventum’s revenue to stall, close to its flat sales for the past two years. This projection is underwhelming and suggests its newer products and services will not catalyze better top-line performance yet.
3. EPS Trending Down
Analyzing the change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Solventum, its EPS declined by 17.1% annually over the last two years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.
Final Judgment
Solventum falls short of our quality standards. With its shares beating the market recently, the stock trades at 13.5× forward price-to-earnings (or $74.24 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are more exciting stocks to buy at the moment. We’d suggest looking at one of our top software and edge computing picks.
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