2 Reasons to Sell EXAS and 1 Stock to Buy Instead

Over the past six months, Exact Sciences’s shares (currently trading at $44.98) have posted a disappointing 9.4% loss, well below the S&P 500’s 5.5% gain. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Exact Sciences, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is Exact Sciences Not Exciting?

Even though the stock has become cheaper, we're sitting this one out for now. Here are two reasons why EXAS doesn't excite us and a stock we'd rather own.

1. 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.

While Exact Sciences posted positive free cash flow this quarter, the broader story hasn’t been so clean. Exact Sciences’s demanding reinvestments have consumed many resources over the last five years, contributing to an average free cash flow margin of negative 3.1%. This means it lit $3.14 of cash on fire for every $100 in revenue.

2. Previous Growth Initiatives Have Lost Money

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).

Exact Sciences’s five-year average ROIC was negative 14.7%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

Final Judgment

Exact Sciences isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 61.3× forward P/E (or $44.98 per share). This multiple tells us a lot of good news is priced in - we think other companies feature superior fundamentals at the moment. We’d recommend looking at one of our top software and edge computing picks.

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