Viatris (VTRS): Buy, Sell, or Hold Post Q4 Earnings?

Viatris has had an impressive run over the past six months as its shares have beaten the S&P 500 by 34.7%. The stock now trades at $14.11, marking a 37.8% gain. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now the time to buy Viatris, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Do We Think Viatris Will Underperform?

We’re glad investors have benefited from the price increase, but we're cautious about Viatris. Here are three reasons we avoid VTRS and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Viatris’s sales grew at a tepid 3.7% compounded annual growth rate over the last five years. This fell short of our benchmark for the healthcare sector.

2. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for Viatris, its EPS declined by 9.8% annually over the last five years while its revenue grew by 3.7%. This tells us the company became less profitable on a per-share basis as it expanded.

3. Previous Growth Initiatives Have Lost Money

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Viatris’s five-year average ROIC was negative 2.6%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

Final Judgment

We see the value of companies making people healthier, but in the case of Viatris, we’re out. With its shares beating the market recently, the stock trades at 5.8× forward P/E (or $14.11 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 Amazon and PayPal of Latin America.

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