3 Reasons to Avoid LH and 1 Stock to Buy Instead

Since June 2025, Labcorp has been in a holding pattern, posting a small return of 1% while floating around $258.38. The stock also fell short of the S&P 500’s 14.1% gain during that period.

Is there a buying opportunity in Labcorp, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.

Why Is Labcorp Not Exciting?

We're swiping left on Labcorp for now. Here are three reasons you should be careful with LH and a stock we'd rather own.

1. Slow Organic Growth Suggests Waning Demand In Core Business

We can better understand Testing & Diagnostics Services companies by analyzing their organic revenue. This metric gives visibility into Labcorp’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Labcorp’s organic revenue averaged 3.9% year-on-year growth. This performance slightly lagged the sector and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations.

2. Shrinking Adjusted Operating Margin

Adjusted operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D. It also removes various one-time costs to paint a better picture of normalized profits.

Looking at the trend in its profitability, Labcorp’s adjusted operating margin decreased by 12.3 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 14.1%.

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, Labcorp’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Labcorp isn’t a terrible business, but it doesn’t pass our quality test. With its shares underperforming the market lately, the stock trades at 15.2× forward P/E (or $258.38 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. We’d recommend looking at one of our top digital advertising picks.

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