2 Reasons to Watch CAH and 1 to Stay Cautious

Cardinal Health currently trades at $196.52 and has been a dream stock for shareholders. It’s returned 273% since November 2020, nearly tripling the S&P 500’s 93.5% gain. The company has also beaten the index over the past six months as its stock price is up 29.6% thanks to its solid quarterly results.

Following the strength, is CAH a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free for active Edge members.

Why Does CAH Stock Spark Debate?

Operating as a critical link in the healthcare supply chain since 1979, Cardinal Health (NYSE:CAH) distributes pharmaceuticals and manufactures medical products for hospitals, pharmacies, and healthcare providers across the global healthcare supply chain.

Two Things to Like:

1. Economies of Scale Give It Negotiating Leverage with Suppliers

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $234.3 billion in revenue over the past 12 months, Cardinal Health is one of the most scaled enterprises in healthcare. This is particularly important because healthcare distribution & related services companies are volume-driven businesses due to their low margins.

2. Projected Revenue Growth Is Remarkable

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.

Over the next 12 months, sell-side analysts expect Cardinal Health’s revenue to rise by 12.4%, an improvement versus its 8.7% annualized growth for the past five years. This projection is particularly healthy for a company of its scale and suggests its newer products and services will fuel better top-line performance.

One Reason to be Careful:

Lackluster Revenue Growth

We at StockStory place the most emphasis on long-term growth, but within healthcare, a stretched historical view may miss recent innovations or disruptive industry trends. Cardinal Health’s recent performance shows its demand has slowed as its annualized revenue growth of 5.6% over the last two years was below its five-year trend.

Final Judgment

Cardinal Health’s positive characteristics outweigh the negatives, and with its shares topping the market in recent months, the stock trades at 19.8× forward P/E (or $196.52 per share). Is now a good time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.

Stocks We Like Even More Than Cardinal Health

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