Viatris has been on fire lately. In the past six months alone, the company’s stock price has rocketed 58.2%, reaching $16.13 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in Viatris, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Viatris Will Underperform?
Despite the momentum, we're cautious about Viatris. Here are three reasons you should be careful with VTRS and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Viatris’s 1.1% annualized revenue growth over the last five years was tepid. This was below our standards.
2. EPS Trending Down
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.
Sadly for Viatris, its EPS declined by 9.2% annually over the last five years while its revenue grew by 1.1%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Previous Growth Initiatives Have Lost Money
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).
Viatris’s five-year average ROIC was negative 2.4%, meaning management lost money while trying to expand the business. Investors are likely hoping for a change soon.
Final Judgment
We see the value of companies making people healthier, but in the case of Viatris, we’re out. Following the recent rally, the stock trades at $16.13 per share (or a forward price-to-sales ratio of 1.3×). The market typically values companies like Viatris based on their anticipated profits for the next 12 months, but there aren’t enough published estimates to arrive at a reliable number. You should avoid this stock for now - better opportunities lie elsewhere. We’d recommend looking at the most dominant software business in the world.
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