Omnicell has been treading water for the past six months, recording a small loss of 4.6% while holding steady at $32.74. The stock also fell short of the S&P 500’s 16.4% gain during that period.
Is now the time to buy Omnicell, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Omnicell Will Underperform?
We’re cautious about Omnicell. Here are three reasons you should be careful with OMCL, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Omnicell grew its sales at a mediocre 4.8% compounded annual growth rate. This fell short of our benchmark for the healthcare sector.
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Omnicell, its EPS declined by 6.2% annually over the last five years while its revenue grew by 4.8%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Previous Growth Initiatives Haven’t Paid Off Yet
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Omnicell historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.1%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.
Final Judgment
Omnicell falls short of our quality standards. With its shares underperforming the market lately, the stock trades at 18.1× forward P/E (or $32.74 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. We’d recommend looking at one of our all-time favorite software stocks.
Stocks We Would Buy Instead of Omnicell
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