From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Players catalyzing medical advancements have benefited from elevated demand, and their momentum is only rising as the industry has posted a 30% gain over the past six months, beating the S&P 500 by 16.7 percentage points.
Nevertheless, investors should tread carefully as the sector is heavily regulated, and businesses can be negatively impacted if the rules change. Keeping that in mind, here are three healthcare stocks we would avoid.
Revvity (RVTY)
Market Cap: $13.87 billion
Formerly known as PerkinElmer until its rebranding in 2023, Revvity (NYSE: RVTY) provides health science technologies and services that support the complete workflow from discovery to development and diagnosis to cure.
Why Is RVTY Risky?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 10.6% annually over the last five years
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
Revvity is trading at $124.35 per share, or 21.4x forward P/E. Check out our free in-depth research report to learn more about why RVTY doesn’t pass our bar.
Bristol-Myers Squibb (BMY)
Market Cap: $130 billion
With roots dating back to 1887 and a transformative merger in 1989 that gave the company its current name, Bristol-Myers Squibb (NYSE: BMY) discovers, develops, and markets prescription medications for serious diseases including cancer, blood disorders, immunological conditions, and cardiovascular diseases.
Why Is BMY Not Exciting?
- The company has faced growth challenges as its 2.1% annual revenue increases over the last five years fell short of other healthcare companies
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 8.2 percentage points
- Earnings per share were flat over the last five years while its revenue grew, showing its incremental sales were less profitable
Bristol-Myers Squibb’s stock price of $63.54 implies a valuation ratio of 9.9x forward P/E. To fully understand why you should be careful with BMY, check out our full research report (it’s free).
Viatris (VTRS)
Market Cap: $18.96 billion
Created through the 2020 merger of Mylan and Pfizer's Upjohn division, Viatris (NASDAQ: VTRS) is a healthcare company that develops, manufactures, and distributes branded and generic medicines across more than 165 countries worldwide.
Why Do We Avoid VTRS?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.7% annually over the last two years
- Sales were less profitable over the last five years as its earnings per share fell by 8% annually, worse than its revenue declines
- Negative returns on capital show management lost money while trying to expand the business, and its decreasing returns suggest its historical profit centers are aging
At $16.60 per share, Viatris trades at 6.4x forward P/E. Read our free research report to see why you should think twice about including VTRS in your portfolio.
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