Progyny trades at $31.10 per share and has stayed right on track with the overall market, gaining 13.4% over the last six months. At the same time, the S&P 500 has returned 9%.
Is there a buying opportunity in Progyny, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Progyny Not Exciting?
We’re cautious about Progyny. Here are three reasons you should be careful with PGNY, plus one stock we’d rather own.
1. Weak Sales Volumes Indicate Waning Demand
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful Health Insurance Providers company because there’s a ceiling to what customers will pay.
Progyny’s units sold came in at 15,647 in the latest quarter, and over the last two years, averaged 4.5% year-on-year growth. This performance slightly lagged the sector and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. Fewer Distribution Channels Limit Its Ceiling
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With just $1.29 billion in revenue over the past 12 months, Progyny is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.
3. Adjusted Operating Margin in Limbo
Adjusted operating margin is a key measure of profitability. Think of it as net income (the bottom line) excluding the impact of non-recurring expenses, taxes, and interest on debt - metrics less connected to business fundamentals.
Analyzing the trend in its profitability, Progyny’s adjusted operating margin might have fluctuated slightly but has generally stayed the same over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 16.7%.
Final Judgment
Progyny isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 14.8× forward P/E (or $31.10 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We’re pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at one of our all-time favorite software stocks.
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