Over the past six months, Dentsply Sirona’s stock price fell to $16.13. Shareholders have lost 17.8% of their capital, which is disappointing considering the S&P 500 has climbed by 5.4%. This might have investors contemplating their next move.

Is now the time to buy Dentsply Sirona, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Do We Think Dentsply Sirona Will Underperform?

Even though the stock has become cheaper, we're cautious about Dentsply Sirona. Here are three reasons why there are better opportunities than XRAY and a stock we'd rather own.

1. Declining Constant Currency Revenue, Demand Takes a Hit

We can better understand Dental Equipment & Technology companies by analyzing their constant currency revenue. This metric excludes currency movements, which are outside of Dentsply Sirona’s control and are not indicative of underlying demand.

Over the last two years, Dentsply Sirona’s constant currency revenue averaged 1.8% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Dentsply Sirona might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

2. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for Dentsply Sirona, its EPS declined by 7% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

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. Unfortunately, Dentsply Sirona’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

We see the value of companies making people healthier, but in the case of Dentsply Sirona, we’re out. After the recent drawdown, the stock trades at 8.5× forward P/E (or $16.13 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.

Stocks We Would Buy Instead of Dentsply Sirona

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