3 Reasons to Avoid LFST and 1 Stock to Buy Instead

Shareholders of LifeStance Health Group would probably like to forget the past six months even happened. The stock dropped 41% and now trades at $4.58. This may have investors wondering how to approach the situation.

Is now the time to buy LifeStance Health Group, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is LifeStance Health Group Not Exciting?

Even with the cheaper entry price, we don't have much confidence in LifeStance Health Group. Here are three reasons why LFST 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 $1.28 billion in revenue over the past 12 months, LifeStance Health Group 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. Cash Burn Ignites Concerns

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

LifeStance Health Group’s demanding reinvestments have consumed many resources over the last five years, contributing to an average free cash flow margin of negative 2.5%. This means it lit $2.53 of cash on fire for every $100 in revenue.

3. Previous Growth Initiatives Have Lost Money

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

LifeStance Health Group’s five-year average ROIC was negative 10.2%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

Final Judgment

LifeStance Health Group isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 59.3× forward P/E (or $4.58 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.

Stocks We Would Buy Instead of LifeStance Health Group

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.

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