Teleflex has been treading water for the past six months, recording a small loss of 2.4% while holding steady at $129.50. The stock also fell short of the S&P 500’s 8.8% gain during that period.

Is now the time to buy Teleflex, 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 Teleflex Not Exciting?

We're cautious about Teleflex. Here are three reasons you should be careful with TFX and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Teleflex grew its sales at a tepid 3.8% compounded annual growth rate. This was below our standard for the healthcare sector.

2. Weak Constant Currency Growth Points to Soft Demand

Investors interested in Surgical Equipment & Consumables - Specialty companies should track constant currency revenue in addition to reported revenue. 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% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

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 4.5 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’s business quality ultimately falls short of our standards. With its shares underperforming the market lately, the stock trades at 9.6× forward P/E (or $129.50 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at one of our top software and edge computing picks.

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