Over the past six months, GE HealthCare’s stock price fell to $74.25. Shareholders have lost 16.9% of their capital, which is disappointing considering the S&P 500 has climbed by 10.3%. This might have investors contemplating their next move.
Is there a buying opportunity in GE HealthCare, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is GE HealthCare Not Exciting?
Even with the cheaper entry price, we're swiping left on GE HealthCare for now. Here are three reasons why GEHC doesn't excite us and a stock we'd rather own.
1. Slow Organic Growth Suggests Waning Demand In Core Business
We can better understand Medical Devices & Supplies - Imaging, Diagnostics companies by analyzing their organic revenue. This metric gives visibility into GE HealthCare’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, GE HealthCare’s organic revenue averaged 2.5% year-on-year growth. This performance slightly lagged the sector and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations. 
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 GE HealthCare, its EPS declined by 3.7% annually over the last four years while its revenue grew by 3%. 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, GE HealthCare’s margin dropped by 9.6 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. GE HealthCare’s free cash flow margin for the trailing 12 months was 7.9%.
Final Judgment
GE HealthCare’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 18× forward P/E (or $74.25 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better investments elsewhere. We’d suggest looking at the most dominant software business in the world.
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