Over the last six months, Enovis’s shares have sunk to $31.17, producing a disappointing 18.2% loss - a stark contrast to the S&P 500’s 10.3% gain. This might have investors contemplating their next move.
Is there a buying opportunity in Enovis, 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 Do We Think Enovis Will Underperform?
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons we avoid ENOV and a stock we'd rather own.
1. Revenue Spiraling Downwards
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Enovis struggled to consistently generate demand over the last five years as its sales dropped at a 7.1% annual rate. This was below our standards and signals it’s a low quality business.
2. Previous Growth Initiatives Have Lost Money
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Enovis’s five-year average ROIC was negative 5.2%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared 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. Over the last few years, Enovis’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
We see the value of companies making people healthier, but in the case of Enovis, we’re out. Following the recent decline, the stock trades at 10× forward P/E (or $31.17 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are superior stocks to buy right now. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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