3 Reasons NVST is Risky and 1 Stock to Buy Instead

Envista has been treading water for the past six months, recording a small loss of 4.3% while holding steady at $20.46. The stock also fell short of the S&P 500’s 6.4% gain during that period.

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

Why Do We Think Envista Will Underperform?

We're cautious about Envista. Here are three reasons why there are better opportunities than NVST and a stock we'd rather own.

1. Constant Currency Revenue Hits a Standstill

Investors interested in Dental Equipment & Technology companies should track constant currency revenue in addition to reported revenue. This metric excludes currency movements, which are outside of Envista’s control and are not indicative of underlying demand.

Over the last two years, Envista failed to grow its constant currency revenue. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Envista might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

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).

Envista’s five-year average ROIC was negative 2.7%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

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, Envista’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

Envista doesn’t pass our quality test. With its shares underperforming the market lately, the stock trades at 18.2× forward P/E (or $20.46 per share). This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere. We’d recommend looking at the Amazon and PayPal of Latin America.

Stocks We Would Buy Instead of Envista

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