Over the past six months, Omnicell’s stock price fell to $32.30. Shareholders have lost 14.4% of their capital, which is disappointing considering the S&P 500 has climbed by 10.5%. This may have investors wondering how to approach the situation.
Is now the time to buy Omnicell, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Omnicell Will Underperform?
Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons there are better opportunities than OMCL and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Omnicell grew its sales at a mediocre 4.9% compounded annual growth rate. This was below our standard 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 6.1% annually over the last five years while its revenue grew by 4.9%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Omnicell’s margin dropped by 13.1 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Omnicell’s free cash flow margin for the trailing 12 months was 9.3%.
Final Judgment
We see the value of companies making people healthier, but in the case of Omnicell, we’re out. Following the recent decline, the stock trades at 22.5× forward P/E (or $32.30 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 a dominant Aerospace business that has perfected its M&A strategy.
Stocks We Would Buy Instead of Omnicell
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