Personal health and wellness is one of the many secular tailwinds for healthcare companies. Shareholders who bet on the industry have been rewarded lately as healthcare stocks have returned 15.6% over the past six months, topping the S&P 500 by 1.7 percentage points.
Nevertheless, investors should tread carefully as the sector is heavily regulated, and businesses can be negatively impacted if the rules change. Taking that into account, here are three healthcare stocks we’re swiping left on.
Progyny (PGNY)
Market Cap: $2.24 billion
Pioneering a data-driven approach to family building that has achieved an industry-leading patient satisfaction score of +80, Progyny (NASDAQ: PGNY) provides comprehensive fertility and family building benefits solutions to employers, helping employees access quality fertility treatments and support services.
Why Does PGNY Give Us Pause?
- Smaller revenue base of $1.27 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Low returns on capital reflect management’s struggle to allocate funds effectively
Progyny’s stock price of $26.00 implies a valuation ratio of 14x forward P/E. If you’re considering PGNY for your portfolio, see our FREE research report to learn more.
Royalty Pharma (RPRX)
Market Cap: $16.4 billion
Pioneering a unique business model in the pharmaceutical industry since 1996, Royalty Pharma (NASDAQ: RPRX) acquires rights to receive portions of sales from successful biopharmaceutical products, providing funding to drug developers without conducting research itself.
Why Are We Hesitant About RPRX?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Subscale operations are evident in its revenue base of $2.35 billion, meaning it has fewer distribution channels than its larger rivals
- Efficiency has decreased over the last five years as its adjusted operating margin fell by 4.4 percentage points
At $38.43 per share, Royalty Pharma trades at 7.7x forward P/E. Dive into our free research report to see why there are better opportunities than RPRX.
ANI Pharmaceuticals (ANIP)
Market Cap: $1.70 billion
With a diverse portfolio of 116 pharmaceutical products and a growing rare disease platform, ANI Pharmaceuticals (NASDAQ: ANIP) develops, manufactures, and markets branded and generic prescription pharmaceuticals, with a focus on rare disease treatments.
Why Does ANIP Fall Short?
- Smaller revenue base of $826.9 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 4.5 percentage points
- Negative returns on capital show that some of its growth strategies have backfired
ANI Pharmaceuticals is trading at $81.08 per share, or 10.4x forward P/E. Check out our free in-depth research report to learn more about why ANIP doesn’t pass our bar.
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