Dentsply Sirona (XRAY): Buy, Sell, or Hold Post Q3 Earnings?

What a brutal six months it’s been for Dentsply Sirona. The stock has dropped 23.6% and now trades at $12.31, rattling many shareholders. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.

Is now the time to buy Dentsply Sirona, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Do We Think Dentsply Sirona Will Underperform?

Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons why XRAY doesn't excite us and a stock we'd rather own.

1. Declining Constant Currency Revenue, Demand Takes a Hit

In addition to reported revenue, constant currency revenue is a useful data point for analyzing Dental Equipment & Technology companies. This metric excludes currency movements, which are outside of Dentsply Sirona’s control and are not indicative of underlying demand.

Over the last two years, Dentsply Sirona’s constant currency revenue averaged 3.9% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Dentsply Sirona might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

2. Previous Growth Initiatives Have Lost Money

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Dentsply Sirona’s five-year average ROIC was negative 9.5%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared 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, Dentsply Sirona’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

Dentsply Sirona falls short of our quality standards. Following the recent decline, the stock trades at 8.5× forward P/E (or $12.31 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. We’d recommend looking at the most entrenched endpoint security platform on the market.

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