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2 healthcare stocks with solid fundamentals and 1 we question
Personal health and wellness is one of the many secular tailwinds for healthcare companies. Players catalyzing medical advancements have benefited from elevated demand, and their momentum is only rising as the industry has posted a 32% gain over the past six months, beating the S&P 500 by 25.7 percentage points.
Regardless of these results, investors must exercise caution as many businesses in this space are subject to heavy regulation that can influence their earnings potential. With that said, here are two healthcare stocks boasting durable advantages and one that may face trouble.
One healthcare stock to sell:
Privia Health (PRVA)
Market cap: $2.83 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 Give Us Pause?
- Modest revenue base of $2.36 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Negative returns on capital show that some of its growth strategies have backfired
Privia Health’s stock price of $22.06 implies a valuation ratio of 20.3x forward P/E. Check out our free in-depth research report to learn more about why PRVA doesn’t pass our bar.
Two healthcare stocks to watch:
iRhythm (IRTC)
Market cap: $4.02 billion
Pioneering the shift from bulky, short-term heart monitors to sleek, wire-free patches, iRhythm Technologies (NASDAQ:IRTC) provides wearable cardiac monitoring devices and AI-powered analysis services that help physicians detect and diagnose heart rhythm disorders.
Why Does IRTC Catch Our Eye?
- Impressive 24% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Earnings per share grew by 17.4% annually over the last five years and trumped its peers
- Free cash flow flipped to positive over the last five years, showing the company is at an important crossroads
iRhythm is trading at $121.88 per share, or 190.2x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
Cigna (CI)
Market cap: $80.8 billion
With roots dating back to 1792 and serving millions of customers across the globe, The Cigna Group (NYSE:CI) provides healthcare services through its Evernorth Health Services and Cigna Healthcare segments, offering pharmacy benefits, specialty care, and medical plans.
Why Does CI Stand Out?
- Solid 13.8% annual revenue growth over the last two years indicates its offerings solve complex business issues
- Unparalleled scale of $282.1 billion in revenue enables it to spread administrative costs across a larger membership base
- Earnings per share grew by 12% annually over the last five years and easily exceeded the peer group average
At $305.68 per share, Cigna trades at 9.7x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
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