From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Shareholders who bet on the industry have seen decent returns lately as healthcare stocks were up 6.4% over the past six months, almost identical to the S&P 500.
Although these businesses have produced results, only a handful will thrive over the long term as the influx of venture capital has ushered in a new wave of competition. On that note, here are three healthcare stocks best left ignored.
Lantheus (LNTH)
Market Cap: $6.79 billion
Pioneering the "Find, Fight and Follow" approach to disease management, Lantheus Holdings (NASDAQGM:LNTH) develops and commercializes radiopharmaceuticals and other imaging agents that help healthcare professionals detect, diagnose, and treat diseases.
Why Does LNTH Fall Short?
- Muted 6.4% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
- Estimated sales decline of 4.9% for the next 12 months implies a challenging demand environment
- Costs have risen faster than its revenue over the last two years, causing its adjusted operating margin to decline by 9.8 percentage points
At $104.29 per share, Lantheus trades at 4.5x forward price-to-sales. Read our free research report to see why you should think twice about including LNTH in your portfolio.
Merit Medical Systems (MMSI)
Market Cap: $3.99 billion
Founded in 1987 and now offering over 1,700 patented products across global markets, Merit Medical Systems (NASDAQ: MMSI) manufactures and markets specialized medical devices used in minimally invasive procedures for cardiology, radiology, oncology, critical care, and endoscopy.
Why Are We Hesitant About MMSI?
- Subscale operations are evident in its revenue base of $1.54 billion, meaning it has fewer distribution channels than its larger rivals
- ROIC of 5.2% reflects management’s challenges in identifying attractive investment opportunities
Merit Medical Systems’s stock price of $66.89 implies a valuation ratio of 16.3x forward P/E. If you’re considering MMSI for your portfolio, see our FREE research report to learn more.
Addus HomeCare (ADUS)
Market Cap: $1.70 billion
Serving approximately 66,000 clients across 22 states with a focus on "dual eligible" Medicare and Medicaid beneficiaries, Addus HomeCare (NASDAQ: ADUS) provides in-home personal care, hospice, and home health services to elderly, chronically ill, and disabled individuals.
Why Is ADUS Not Exciting?
- Smaller revenue base of $1.45 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- ROIC hasn’t moved, making investors question whether its recent investments can increase profitability
Addus HomeCare is trading at $93 per share, or 13.2x forward P/E. To fully understand why you should be careful with ADUS, check out our full research report (it’s free).
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