3 Reasons to Sell ITGR and 1 Stock to Buy Instead

Although the S&P 500 is down 3.6% over the past six months, Integer Holdings’s stock price has fallen further to $118.31, losing shareholders 14.7% of their capital. This may have investors wondering how to approach the situation.

Is now the time to buy Integer Holdings, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Is Integer Holdings Not Exciting?

Even though the stock has become cheaper, we're swiping left on Integer Holdings for now. Here are three reasons why you should be careful with ITGR and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Integer Holdings’s 6.5% annualized revenue growth over the last five years was mediocre. This was below our standard for the healthcare sector.

2. Fewer Distribution Channels Limit its Ceiling

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $1.75 billion in revenue over the past 12 months, Integer Holdings is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

3. Free Cash Flow Margin Dropping

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, Integer Holdings’s margin dropped by 7.7 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Integer Holdings’s free cash flow margin for the trailing 12 months was 6.4%.

Final Judgment

Integer Holdings isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 18.8× forward P/E (or $118.31 per share). This valuation tells us a lot of optimism is priced in - you can find better investment opportunities elsewhere. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.

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