1 Healthcare Stock with Competitive Advantages and 2 We Brush Off

From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. But speed bumps such as inventory destockings have persisted in the wake of COVID-19, limiting growth. This has capped returns as the industry’s six-month gain of 3.7% has lagged the S&P 500’s 7.1% climb.

Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. Taking that into account, here is one resilient healthcare stock at the top of our wish list and two that may face trouble.

Two Healthcare Stocks to Sell:

Privia Health (PRVA)

Market Cap: $2.91 billion

Operating in 13 states and the District of Columbia with over 4,300 providers serving more than 4.8 million patients, Privia Health (NASDAQ:PRVA) is a technology-driven company that helps physicians optimize their practices, improve patient experiences, and transition to value-based care models.

Why Does PRVA Worry Us?

1. Revenue base of $2.25 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
2. Low free cash flow margin of 5% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities

Privia Health is trading at $23.05 per share, or 22.4x forward P/E. If you’re considering PRVA for your portfolio, see our FREE research report to learn more.

Collegium Pharmaceutical (COLL)

Market Cap: $1.23 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 Do We Think Twice About COLL?

1. Revenue base of $796.3 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
2. Costs have risen faster than its revenue over the last two years, causing its adjusted operating margin to decline by 6.4 percentage points

Collegium Pharmaceutical’s stock price of $37.78 implies a valuation ratio of 1.8x forward price-to-sales. Check out our free in-depth research report to learn more about why COLL doesn’t pass our bar.

One Healthcare Stock to Watch:

Globus Medical (GMED)

Market Cap: $10.58 billion

With operations spanning 64 countries and a portfolio of over 10 new products launched in 2023 alone, Globus Medical (NYSE:GMED) develops and sells implantable devices, surgical instruments, and technology solutions for spine, orthopedic, and neurosurgical procedures.

Why Could GMED Be a Winner?

1. Market share has increased this cycle as its 30.3% annual revenue growth over the last five years was exceptional
2. Business is well-positioned no matter the global macroeconomic backdrop as its constant currency revenue growth averaged 22.8% over the past two years
3. Earnings growth has trumped its peers over the last five years as its EPS has compounded at 22.2% annually

At $78.81 per share, Globus Medical trades at 17.8x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.

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