3 Healthcare Stocks with Warning Signs

Personal health and wellness is one of the many secular tailwinds for healthcare companies. But speed bumps such as inventory destockings have persisted in the wake of COVID-19, and over the past six months, the industry has pulled back by 13.6%. This performance is a stark contrast from the S&P 500’s 3.1% gain.

Investors should tread carefully as the influx of venture capital has also ushered in a new wave of competition. On that note, here are three healthcare stocks we’re swiping left on.

Artivion (AORT)

Market Cap: $1.43 billion

Formerly known as CryoLife until its 2022 rebranding, Artivion (NYSE:AORT) develops and manufactures medical devices and preserves human tissues used in cardiac and vascular surgical procedures for patients with aortic disease.

Why Is AORT Risky?

1. Annual revenue growth of 7.2% over the last five years was below our standards for the healthcare sector
2. Smaller revenue base of $390.1 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
3. Low returns on capital reflect management’s struggle to allocate funds effectively

Artivion is trading at $30.40 per share, or 45.2x forward P/E. If you’re considering AORT for your portfolio, see our FREE research report to learn more.

Clover Health (CLOV)

Market Cap: $1.64 billion

Founded in 2014 to improve healthcare for America's seniors through technology, Clover Health (NASDAQ:CLOV) provides Medicare Advantage plans for seniors with a focus on affordable care and uses its proprietary Clover Assistant software to help physicians manage patient care.

Why Are We Cautious About CLOV?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 28.7% annually over the last two years
2. Weak customer trends over the past two years suggest it may need to improve its products, pricing, or go-to-market strategy
3. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value

Clover Health’s stock price of $3.27 implies a valuation ratio of 43.9x forward EV-to-EBITDA. To fully understand why you should be careful with CLOV, check out our full research report (it’s free).

Jazz Pharmaceuticals (JAZZ)

Market Cap: $7.04 billion

Originally founded in 2003 and now headquartered in Ireland following a 2012 tax inversion merger, Jazz Pharmaceuticals (NASDAQGS:JAZZ) develops and markets medicines for sleep disorders, epilepsy, and cancer, with a focus on treatments for patients with limited therapeutic options.

Why Does JAZZ Worry Us?

1. Muted 4.3% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
2. Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 6.7 percentage points
3. Underwhelming 5.3% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up

At $114 per share, Jazz Pharmaceuticals trades at 5x forward P/E. Dive into our free research report to see why there are better opportunities than JAZZ.

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