Over the past six months, CONMED’s stock price fell to $52.81. Shareholders have lost 14.7% of their capital, which is disappointing considering the S&P 500 has climbed by 17.4%. This may have investors wondering how to approach the situation.
Is now the time to buy CONMED, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is CONMED Not Exciting?
Even with the cheaper entry price, we're swiping left on CONMED for now. Here are two reasons you should be careful with CNMD and a 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 $1.33 billion in revenue over the past 12 months, CONMED 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. Previous Growth Initiatives Haven’t Impressed
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).
CONMED historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.5%, somewhat low compared to the best healthcare companies that consistently pump out 20%+.
Final Judgment
CONMED isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 11.7× forward P/E (or $52.81 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. We’d recommend looking at the most dominant software business in the world.
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