What a brutal six months it’s been for Artivion. The stock has dropped 29.1% and now trades at $25.57, rattling many shareholders. This may have investors wondering how to approach the situation.
Is now the time to buy Artivion, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Artivion Not Exciting?
Even though the stock has become cheaper, we’re sitting this one out for now. Here are three reasons why AORT doesn’t excite us, plus one stock we’d rather own.
1. Fewer Distribution Channels Limit Its Ceiling
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With just $471.5 million in revenue over the past 12 months, Artivion is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.
2. Cash Burn Ignites Concerns
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Artivion’s demanding reinvestments have consumed many resources over the last five years, contributing to an average free cash flow margin of negative 1.1%. This means it lit $1.12 of cash on fire for every $100 in revenue.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Artivion historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 2.4%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.
Final Judgment
Artivion isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 47.4× forward P/E (or $25.57 per share). This multiple tells us a lot of good news is priced in - you can find more timely opportunities elsewhere. We’d suggest looking at the most dominant software business in the world.
Stocks We Like More Than Artivion
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