Integer Holdings has had an impressive run over the past six months as its shares have beaten the S&P 500 by 15%. The stock now trades at $85.04, marking a 25% gain. This performance may have investors wondering how to approach the situation.
Is now the time to buy Integer Holdings, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Integer Holdings Not Exciting?
Despite the momentum, we're swiping left on Integer Holdings for now. Here are three reasons why ITGR doesn't excite us and a stock we'd rather own.
1. Fewer Distribution Channels Limit its Ceiling
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With just $1.86 billion in revenue over the past 12 months, Integer Holdings is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.
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 Integer Holdings’s revenue to stall, a deceleration versus its 12.4% annualized growth for the past five years. This projection doesn't excite us and indicates its products and services will see some demand headwinds.
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).
Integer Holdings historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.4%, somewhat low compared to the best healthcare companies that consistently pump out 20%+.
Final Judgment
Integer Holdings’s business quality ultimately falls short of our standards. With its shares topping the market in recent months, the stock trades at 13.3× forward P/E (or $85.04 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.
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