Shareholders of Teleflex would probably like to forget the past six months even happened. The stock dropped 34% and now trades at $129.15. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy Teleflex, 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 Teleflex Not Exciting?
Even with the cheaper entry price, we're cautious about Teleflex. Here are three reasons why you should be careful with TFX and a stock we'd rather own.
1. Weak Constant Currency Growth Points to Soft Demand
In addition to reported revenue, constant currency revenue is a useful data point for analyzing Surgical Equipment & Consumables - Specialty companies. This metric excludes currency movements, which are outside of Teleflex’s control and are not indicative of underlying demand.
Over the last two years, Teleflex’s constant currency revenue averaged 2.6% 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. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Teleflex’s unimpressive 3.3% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative 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. On average, Teleflex’s ROIC decreased by 3.6 percentage points annually 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
Teleflex isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 8.6× forward P/E (or $129.15 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at one of our top digital advertising picks.
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