From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Shareholders who bet on the industry have been rewarded lately as healthcare stocks have returned 10.8% over the past six months, topping the S&P 500 by 4.1 percentage points.

Although these businesses have produced results, only a handful will thrive over the long term as the influx of venture capital has ushered in a new wave of competition. Taking that into account, here are three healthcare stocks that may face trouble.

Mettler-Toledo (MTD)

Market Cap: $27.96 billion

With roots dating back to the precision balance innovations of Swiss engineer Erhard Mettler, Mettler-Toledo (NYSE: MTD) manufactures precision weighing instruments, analytical equipment, and product inspection systems used in laboratories, industrial settings, and food retail.

Why Does MTD Give Us Pause?

1. Annual revenue growth of 3.1% over the last two years was below our standards for the healthcare sector
2. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Mettler-Toledo’s stock price of $1,376 implies a valuation ratio of 29.1x forward P/E. Check out our free in-depth research report to learn more about why MTD doesn’t pass our bar.

Revvity (RVTY)

Market Cap: $11.08 billion

Formerly known as PerkinElmer until its rebranding in 2023, Revvity (NYSE: RVTY) provides health science technologies and services that support the complete workflow from discovery to development and diagnosis to cure.

Why Should You Dump RVTY?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Inability to adjust its cost structure while its revenue declined over the last five years led to a 7.1 percentage point drop in the company’s adjusted operating margin
3. Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 9.4% annually, worse than its revenue

Revvity is trading at $97.73 per share, or 17.6x forward P/E. Read our free research report to see why you should think twice about including RVTY in your portfolio.

Royalty Pharma (RPRX)

Market Cap: $19.42 billion

Pioneering a unique business model in the pharmaceutical industry since 1996, Royalty Pharma (NASDAQ: RPRX) acquires rights to receive portions of sales from successful biopharmaceutical products, providing funding to drug developers without conducting research itself.

Why Are We Hesitant About RPRX?

1. Flat sales over the last two years suggest it must find different ways to grow during this cycle
2. Smaller revenue base of $2.38 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy

At $44.45 per share, Royalty Pharma trades at 8.7x forward P/E. Dive into our free research report to see why there are better opportunities than RPRX.

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