3 Reasons PINC is Risky and 1 Stock to Buy Instead

What a time it’s been for Premier. In the past six months alone, the company’s stock price has increased by a massive 44.5%, reaching $26.27 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now the time to buy Premier, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think Premier Will Underperform?

Despite the momentum, we're sitting this one out for now. Here are three reasons we avoid PINC and a stock we'd rather own.

1. Revenue Spiraling Downwards

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Premier’s demand was weak over the last five years as its sales fell at a 4.9% annual rate. This was below our standards and is a sign of poor business quality.

2. Shrinking Adjusted Operating Margin

Adjusted operating margin is a key measure of profitability. Think of it as net income (the bottom line) excluding the impact of non-recurring expenses, taxes, and interest on debt - metrics less connected to business fundamentals.

Analyzing the trend in its profitability, Premier’s adjusted operating margin decreased by 15.2 percentage points over the last two years. Even though its historical margin was healthy, shareholders will want to see Premier become more profitable in the future. Its adjusted operating margin for the trailing 12 months was 13.5%.

3. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for Premier, its EPS declined by 11.8% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

Final Judgment

We see the value of companies making people healthier, but in the case of Premier, we’re out. Following the recent surge, the stock trades at 19× forward P/E (or $26.27 per share). At this valuation, there’s a lot of good news priced in - you can find more timely opportunities elsewhere. We’d recommend looking at the most dominant software business in the world.

Stocks We Would Buy Instead of Premier

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