Over the past six months, Labcorp has been a great trade, beating the S&P 500 by 9.5%. Its stock price has climbed to $339.34, representing a healthy 20% increase. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Labcorp, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Labcorp Not Exciting?
Despite the momentum, we’re sitting this one out for now. Here are three reasons why there are better opportunities than LH, plus one stock we’d rather own.
1. Revenue Spiraling Downwards
A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Labcorp’s demand was weak and its revenue declined by 2.6% per year. This was below our standards and signals it’s a lower quality business.
2. Slow Organic Growth Suggests Waning Demand In Core Business
We can better understand Testing & Diagnostics Services companies by analyzing their organic revenue. This metric gives visibility into Labcorp’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Labcorp’s organic revenue averaged 4.3% year-on-year growth. This performance slightly lagged the sector and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations. 
3. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Labcorp, its EPS declined by 12.4% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
Final Judgment
Labcorp isn’t a terrible business, but it isn’t one of our picks. With its shares outperforming the market lately, the stock trades at 17.8× forward P/E (or $339.34 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We’re fairly confident there are better stocks to buy right now. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
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