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 1.1% gain over the past six months while the S&P 500 was stuck in neutral.
Nevertheless, investors should tread carefully as the sector is heavily regulated, and businesses can be negatively impacted if the rules change. Taking that into account, here are two healthcare stocks we think can generate sustainable market-beating returns and one we’re steering clear of.
One Healthcare Stock to Sell:
Novavax (NVAX)
Market Cap: $1.57 billion
Pioneering a nanoparticle technology that mimics the molecular structure of disease pathogens, Novavax (NASDAQ: NVAX) develops and commercializes protein-based vaccines for infectious diseases, with a primary focus on its COVID-19 vaccine and combination respiratory vaccine candidates.
Why Are We Wary of NVAX?
- Muted 6.9% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
- Projected sales decline of 66.2% for the next 12 months points to a tough demand environment ahead
- Free cash flow margin shrank by 45.5 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $9.67 per share, Novavax trades at 4.2x forward price-to-sales. Check out our free in-depth research report to learn more about why NVAX doesn’t pass our bar.
Two Healthcare Stocks to Buy:
DexCom (DXCM)
Market Cap: $25.77 billion
Founded in 1999 and receiving its first FDA approval in 2006, DexCom (NASDAQ: DXCM) develops and sells continuous glucose monitoring systems that allow people with diabetes to track their blood sugar levels without repeated finger pricks.
Why Will DXCM Outperform?
- Core business is healthy and doesn’t need acquisitions to boost sales as its organic revenue growth averaged 14.1% over the past two years
- Share repurchases over the last five years enabled its annual earnings per share growth of 22.1% to outpace its revenue gains
- Free cash flow margin increased by 20.9 percentage points over the last five years, giving the company more capital to invest or return to shareholders
DexCom is trading at $67.53 per share, or 27x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Hims & Hers Health (HIMS)
Market Cap: $5.02 billion
Originally launched with a focus on stigmatized conditions like hair loss and sexual health, Hims & Hers Health (NYSE: HIMS) operates a consumer-focused telehealth platform that connects patients with healthcare providers for prescriptions and wellness products.
Why Should You Buy HIMS?
- Average customer growth of 29.5% over the past two years demonstrates success in acquiring new clients that could increase their spending in the future
- Free cash flow margin grew by 16.9 percentage points over the last five years, giving the company more chips to play with
- Rising returns on capital show the company is starting to reap the benefits of its past investments
Hims & Hers Health’s stock price of $22.10 implies a valuation ratio of 22x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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