Artivion’s stock price has taken a beating over the past six months, shedding 43.8% of its value and falling to $24.10 per share. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Artivion, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Artivion Not Exciting?
Even with the cheaper entry price, we don’t have much confidence in Artivion. Here are three reasons we avoid AORT, plus one 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 $458.7 million in revenue over the past 12 months, Artivion 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. Breakeven Free Cash Flow Limits Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Artivion broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.
3. 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).
Artivion historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 2.7%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.
Final Judgment
Artivion isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 47.4× forward P/E (or $24.10 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 fast-growing restaurant franchise with an A+ ranch dressing sauce.
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