Thermo Fisher (TMO): Buy, Sell, or Hold Post Q3 Earnings?

What a time it’s been for Thermo Fisher. In the past six months alone, the company’s stock price has increased by a massive 41.4%, reaching $591.90 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now the time to buy Thermo Fisher, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free for active Edge members.

Why Is Thermo Fisher Not Exciting?

We’re glad investors have benefited from the price increase, but we don't have much confidence in Thermo Fisher. Here are three reasons you should be careful with TMO and a stock we'd rather own.

1. Revenue Growth Flatlining

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. Thermo Fisher’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

2. Core Business Falling Behind as Demand Plateaus

In addition to reported revenue, organic revenue is a useful data point for analyzing Research Tools & Consumables companies. This metric gives visibility into Thermo Fisher’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, Thermo Fisher failed to grow its organic revenue. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Thermo Fisher might have to lean into acquisitions to accelerate growth, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

3. 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.

Looking at the trend in its profitability, Thermo Fisher’s adjusted operating margin decreased by 9.2 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 22.8%.

Final Judgment

Thermo Fisher’s business quality ultimately falls short of our standards. Following the recent rally, the stock trades at 24.1× forward P/E (or $591.90 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better investments elsewhere. We’d suggest looking at one of our all-time favorite software stocks.

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