Pediatrix Medical Group has been on fire lately. In the past six months alone, the company’s stock price has rocketed 76.8%, reaching $22.67 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in Pediatrix Medical Group, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Pediatrix Medical Group Not Exciting?
We’re happy investors have made money, but we're sitting this one out for now. Here are three reasons why MD doesn't excite us and a stock we'd rather own.
1. Same-Store Sales Falling Behind Peers
We can better understand Specialized Medical & Nursing Services companies by analyzing their same-store sales. This metric measures the change in sales at brick-and-mortar locations that have existed for at least a year, giving visibility into Pediatrix Medical Group’s underlying demand characteristics.
Over the last two years, Pediatrix Medical Group’s same-store sales averaged 4.8% year-on-year growth. This performance slightly lagged the sector and suggests it might have to change its strategy or pricing, which can disrupt operations.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Pediatrix Medical Group’s revenue to rise by 1.1%. Although this projection indicates its newer products and services will catalyze better top-line performance, it is still below average for the sector.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Pediatrix Medical Group’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
Pediatrix Medical Group isn’t a terrible business, but it doesn’t pass our quality test. Following the recent rally, the stock trades at 10.2× forward P/E (or $22.67 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward one of our top software and edge computing picks.
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