3 Healthcare Stocks We Approach with Caution

Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. Shareholders who bet on the industry have been rewarded lately as healthcare stocks have returned 15.5% over the past six months, topping the S&P 500 by 2.5 percentage points.

Nevertheless, investors should tread carefully as the sector is heavily regulated, and businesses can be negatively impacted if the rules change. Keeping that in mind, here are three healthcare stocks we’re swiping left on.

AMN Healthcare Services (AMN)

Market Cap: $632.9 million

With a network of thousands of healthcare professionals ranging from nurses to physicians to executives, AMN Healthcare (NYSE:AMN) provides healthcare workforce solutions including temporary staffing, permanent placement, and technology platforms for hospitals and healthcare facilities across the United States.

Why Do We Avoid AMN?

1. Declining travelers on assignment over the past two years suggest it might have to lower prices to accelerate growth
2. Earnings per share have dipped by 10.5% annually over the past five years, which is concerning because stock prices follow EPS over the long term
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

AMN Healthcare Services’s stock price of $16.41 implies a valuation ratio of 22x forward P/E. Check out our free in-depth research report to learn more about why AMN doesn’t pass our bar.

Progyny (PGNY)

Market Cap: $2.26 billion

Pioneering a data-driven approach to family building that has achieved an industry-leading patient satisfaction score of +80, Progyny (NASDAQ:PGNY) provides comprehensive fertility and family building benefits solutions to employers, helping employees access quality fertility treatments and support services.

Why Does PGNY Give Us Pause?

1. Modest revenue base of $1.27 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
2. Below-average returns on capital indicate management struggled to find compelling investment opportunities

Progyny is trading at $26.17 per share, or 13.8x forward P/E. Dive into our free research report to see why there are better opportunities than PGNY.

GoodRx (GDRX)

Market Cap: $930 million

Started in 2011 to tackle the problem of high prescription drug costs in America, GoodRx (NASDAQ:GDRX) operates a digital platform that helps consumers find lower prices on prescription medications through price comparison tools and discount codes.

Why Do We Steer Clear of GDRX?

1. Underwhelming customer growth over the past two years shows the company faced challenges in winning new contracts
2. Modest revenue base of $800.7 million gives it less fixed cost leverage and fewer distribution channels than larger companies
3. Negative returns on capital show management lost money while trying to expand the business

At $2.74 per share, GoodRx trades at 7x forward P/E. If you’re considering GDRX for your portfolio, see our FREE research report to learn more.

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