Viatris’s 35.8% return over the past six months has outpaced the S&P 500 by 8.4%, and its stock price has climbed to $10.44 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Viatris, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free for active Edge members.
Why Do We Think Viatris Will Underperform?
Despite the momentum, we're cautious about Viatris. Here are three reasons we avoid VTRS and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Viatris grew its sales at a mediocre 4.2% compounded annual growth rate. This was below our standard for the healthcare sector.
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Viatris, its EPS declined by 12% annually over the last five years while its revenue grew by 4.2%. 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 2.8%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.
Final Judgment
We cheer for all companies helping people live better, but in the case of Viatris, we’ll be cheering from the sidelines. With its shares topping the market in recent months, the stock trades at 4.4× forward P/E (or $10.44 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment. Let us point you toward an all-weather company that owns household favorite Taco Bell.
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