Henry Schein trades at $76.27 per share and has stayed right on track with the overall market, gaining 8% over the last six months. At the same time, the S&P 500 has returned 11.5%.

Is there a buying opportunity in Henry Schein, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is Henry Schein Not Exciting?

We're swiping left on Henry Schein for now. Here are three reasons there are better opportunities than HSIC and a stock we'd rather own.

1. Core Business Falling Behind as Demand Plateaus

Investors interested in Dental Equipment & Technology companies should track organic revenue in addition to reported revenue. This metric gives visibility into Henry Schein’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, Henry Schein failed to grow its organic revenue. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Henry Schein might have to lean into acquisitions to accelerate growth, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

2. Free Cash Flow Margin Dropping

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, Henry Schein’s margin dropped by 2.8 percentage points over the last five years. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business. Henry Schein’s free cash flow margin for the trailing 12 months was 3.1%.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Henry Schein’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Henry Schein isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 14.6× forward P/E (or $76.27 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at an all-weather company that owns household favorite Taco Bell.

Stocks We Would Buy Instead of Henry Schein

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