3 Healthcare Stocks We Steer Clear Of

From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Those leading the charge have not only realized strong financial performance but also propelled the broader industry’s returns as healthcare stocks have gained 14.5% over the past six months while the S&P 500 was up 11.5%.

Nevertheless, investors should tread carefully as the sector is heavily regulated, and businesses can be negatively impacted if the rules change. With that said, here are three healthcare stocks best left ignored.

LeMaitre (LMAT)

Market Cap: $1.99 billion

Founded in 1983 and named after a pioneering vascular surgeon, LeMaitre Vascular (NASDAQGM:LMAT) develops and manufactures specialized medical devices used by vascular surgeons to treat peripheral vascular disease and other circulatory conditions.

Why Are We Cautious About LMAT?

1. Modest revenue base of $240.9 million gives it less fixed cost leverage and fewer distribution channels than larger companies

LeMaitre is trading at $87.93 per share, or 34.1x forward P/E. Check out our free in-depth research report to learn more about why LMAT doesn’t pass our bar.

CONMED (CNMD)

Market Cap: $1.32 billion

With over five decades of experience in surgical innovation since its founding in 1970, CONMED (NYSE:CNMD) develops and manufactures medical devices and equipment for surgical procedures, specializing in orthopedic and general surgery products.

Why Are We Hesitant About CNMD?

1. Annual revenue growth of 7.4% over the last two years was below our standards for the healthcare sector
2. Subscale operations are evident in its revenue base of $1.35 billion, meaning it has fewer distribution channels than its larger rivals
3. Underwhelming 5.2% return on capital reflects management’s difficulties in finding profitable growth opportunities

CONMED’s stock price of $42.78 implies a valuation ratio of 9.2x forward P/E. If you’re considering CNMD for your portfolio, see our FREE research report to learn more.

Bio-Techne (TECH)

Market Cap: $9.59 billion

With a catalog of hundreds of thousands of specialized biological products used in laboratories worldwide, Bio-Techne (NASDAQ:TECH) develops and manufactures specialized reagents, instruments, and services that help researchers study biological processes and enable diagnostic testing and cell therapy development.

Why Do We Steer Clear of TECH?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Subscale operations are evident in its revenue base of $1.22 billion, meaning it has fewer distribution channels than its larger rivals
3. Free cash flow margin dropped by 11.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up

At $61.53 per share, Bio-Techne trades at 30.4x forward P/E. To fully understand why you should be careful with TECH, check out our full research report (it’s free for active Edge members).

Stocks We Like More

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