3 Reasons to Sell DGX and 1 Stock to Buy Instead

Quest’s 12.9% return over the past six months has outpaced the S&P 500 by 7.7%, and its stock price has climbed to $173.97 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is there a buying opportunity in Quest, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is Quest Not Exciting?

Despite the momentum, we're swiping left on Quest for now. Here are three reasons why we avoid DGX and a stock we'd rather own.

1. Weak Sales Volumes Indicate Waning Demand

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful Testing & Diagnostics Services company because there’s a ceiling to what customers will pay.

Quest’s requisition volumes came in at 59 million in the latest quarter, and over the last two years, averaged 4.5% year-on-year growth. This performance slightly lagged the sector and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

2. 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, Quest’s adjusted operating margin decreased by 10.3 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 15.7%.

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. Unfortunately, Quest’s ROIC has decreased over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Quest’s business quality ultimately falls short of our standards. With its shares beating the market recently, the stock trades at 17.6× forward P/E (or $173.97 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward a dominant Aerospace business that has perfected its M&A strategy.

Stocks We Would Buy Instead of Quest

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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.