Personal health and wellness is one of the many secular tailwinds for healthcare companies. But speed bumps such as inventory destockings have persisted in the wake of COVID-19, and over the past six months, the industry has pulled back by 7.2%. This drawdown is a stark contrast from the S&P 500’s 5.2% gain.
While some businesses have durable competitive advantages that enable them to grow consistently, the odds aren’t great for the ones we’re analyzing today. Keeping that in mind, here are three healthcare stocks we’re steering clear of.
Myriad Genetics (MYGN)
Market Cap: $531.3 million
Founded in 1991 as one of the pioneers in translating genetic discoveries into clinical applications, Myriad Genetics (NASDAQ: MYGN) develops genetic tests that assess disease risk, guide treatment decisions, and provide insights across oncology, women's health, and mental health.
Why Do We Steer Clear of MYGN?
- Sales trends were unexciting over the last five years as its 5.5% annual growth was below the typical healthcare company
- Negative returns on capital show that some of its growth strategies have backfired, and its shrinking returns suggest its past profit sources are losing steam
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $5.75 per share, Myriad Genetics trades at 65.7x forward P/E. Dive into our free research report to see why there are better opportunities than MYGN.
ANI Pharmaceuticals (ANIP)
Market Cap: $1.76 billion
With a diverse portfolio of 116 pharmaceutical products and a growing rare disease platform, ANI Pharmaceuticals (NASDAQ: ANIP) develops, manufactures, and markets branded and generic prescription pharmaceuticals, with a focus on rare disease treatments.
Why Is ANIP Not Exciting?
- Subscale operations are evident in its revenue base of $747.4 million, meaning it has fewer distribution channels than its larger rivals
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 5.6 percentage points
- Negative returns on capital show management lost money while trying to expand the business
ANI Pharmaceuticals’s stock price of $87.06 implies a valuation ratio of 13.6x forward P/E. Read our free research report to see why you should think twice about including ANIP in your portfolio.
Collegium Pharmaceutical (COLL)
Market Cap: $1.19 billion
Pioneering abuse-deterrent technology in a field plagued by addiction concerns, Collegium Pharmaceutical (NASDAQ: COLL) develops and markets specialty medications for treating moderate to severe pain, including abuse-deterrent opioid formulations.
Why Does COLL Worry Us?
- Smaller revenue base of $707 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Free cash flow margin shrank by 2.7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Collegium Pharmaceutical is trading at $37.74 per share, or 5x forward P/E. If you’re considering COLL for your portfolio, see our FREE research report to learn more.
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