CooperCompanies (COO): Buy, Sell, or Hold Post Q1 Earnings?

CooperCompanies’s stock price has taken a beating over the past six months, shedding 25.9% of its value and falling to $71.61 per share. This may have investors wondering how to approach the situation.

Is there a buying opportunity in CooperCompanies, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Is CooperCompanies Not Exciting?

Despite the more favorable entry price, we're cautious about CooperCompanies. Here are two reasons why we avoid COO and a stock we'd rather own.

1. Free Cash Flow Margin Dropping

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.

As you can see below, CooperCompanies’s margin dropped by 6.4 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity. CooperCompanies’s free cash flow margin for the trailing 12 months was 9.2%.

2. Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

CooperCompanies historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.1%, somewhat low compared to the best healthcare companies that consistently pump out 20%+.

Final Judgment

CooperCompanies’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 17× forward P/E (or $71.61 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at the most entrenched endpoint security platform on the market.

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