3 Healthcare Stocks with Open Questions

Personal health and wellness is one of the many secular tailwinds for healthcare companies. But financial performance has lagged recently as players offloaded surplus COVID inventories in 2023 and 2024, a headwind for overall demand. The result? Over the past six months, the industry has tumbled by 3.1%. This performance is a noticeable divergence from the S&P 500’s 10.3% return.

Investors should tread carefully as the influx of venture capital has also ushered in a new wave of competition. With that said, here are three healthcare stocks best left ignored.

Tandem Diabetes (TNDM)

Market Cap: $827.1 million

With technology that automatically adjusts insulin delivery based on continuous glucose monitoring data, Tandem Diabetes Care (NASDAQ:TNDM) develops and manufactures automated insulin delivery systems that help people with diabetes manage their blood glucose levels.

Why Are We Out on TNDM?

1. Disappointing pump shipments over the past two years suggest it might have to lower prices to accelerate growth
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 21% annually
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

Tandem Diabetes’s stock price of $12.39 implies a valuation ratio of 15.3x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including TNDM in your portfolio.

Chemed (CHE)

Market Cap: $6.48 billion

With a unique business model combining end-of-life care and household services, Chemed (NYSE:CHE) operates two distinct businesses: VITAS, which provides hospice care for terminally ill patients, and Roto-Rooter, which offers plumbing and water restoration services.

Why Is CHE Not Exciting?

1. 4.4% annual revenue growth over the last five years was slower than its healthcare peers
2. Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 2.7 percentage points
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $446.26 per share, Chemed trades at 17.9x forward P/E. To fully understand why you should be careful with CHE, check out our full research report (it’s free).

NeoGenomics (NEO)

Market Cap: $865.5 million

Operating a network of CAP-accredited and CLIA-certified laboratories across the United States and United Kingdom, NeoGenomics (NASDAQ:NEO) provides specialized cancer diagnostic testing services, including genetic analysis, molecular testing, and pathology consultation for oncologists and healthcare providers.

Why Should You Dump NEO?

1. Smaller revenue base of $689.2 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
2. Negative returns on capital show management lost money while trying to expand the business, and its decreasing returns suggest its historical profit centers are aging
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

NeoGenomics is trading at $6.70 per share, or 28x forward P/E. If you’re considering NEO for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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