What a brutal six months it’s been for Avantor. The stock has dropped 30.3% and now trades at $7.66, rattling many shareholders. This might have investors contemplating their next move.
Is now the time to buy Avantor, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Avantor Will Underperform?
Despite the more favorable entry price, we don't have much confidence in Avantor. Here are three reasons we avoid AVTR and a stock we'd rather own.
1. Core Business Falling Behind as Demand Declines
We can better understand Research Tools & Consumables companies by analyzing their organic revenue. This metric gives visibility into Avantor’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, Avantor’s organic revenue averaged 2.1% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Avantor might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
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 Avantor’s revenue to stall. While this projection implies its newer products and services will spur better top-line performance, it is still below average for the sector.
3. EPS Trending Down
Analyzing the long-term 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 Avantor, its EPS declined by 4.5% annually over the last five 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
We cheer for all companies helping people live better, but in the case of Avantor, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 9.3× forward P/E (or $7.66 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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