Over the past six months, Revvity’s shares (currently trading at $111) have posted a disappointing 8.5% loss, well below the S&P 500’s 5.1% gain. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Revvity, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free .
Even though the stock has become cheaper, we don't have much confidence in Revvity. Here are three reasons why we avoid RVTY and a stock we'd rather own.
Why Do We Think Revvity Will Underperform?
Formerly known as PerkinElmer, Revvity (NYSE:RVTY) offers advanced diagnostic tools, scientific instruments, and services designed to support the pharmaceutical and biotechnology industries.
1. Weak Constant Currency Growth Points to Soft Demand
We can better understand Research Tools & Consumables companies by analyzing their constant currency revenue. This metric excludes currency movements, which are outside of Revvity’s control and are not indicative of underlying demand.
Over the last two years, Revvity’s constant currency revenue averaged 2% year-on-year growth. This performance slightly lagged the sector and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.
2. Shrinking Adjusted Operating Margin
Adjusted operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D. It also removes various one-time costs to paint a better picture of normalized profits.
Analyzing the trend in its profitability, Revvity’s adjusted operating margin decreased by 8.3 percentage points over the last two years. Even though its historical margin was healthy, shareholders will want to see Revvity become more profitable in the future. Its adjusted operating margin for the trailing 12 months was 28.3%.
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, Revvity’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
Revvity falls short of our quality standards. Following the recent decline, the stock trades at 22.1× forward price-to-earnings (or $111 per share). This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now. We’d recommend looking at a top digital advertising platform riding the creator economy .
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