What a brutal six months it’s been for Integer Holdings. The stock has dropped 23.1% and now trades at $85.78, rattling many shareholders. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Integer Holdings, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Integer Holdings Not Exciting?
Despite the more favorable entry price, we're swiping left on Integer Holdings for now. Here are three reasons why ITGR doesn't excite us and a 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 $1.83 billion in revenue over the past 12 months, Integer Holdings 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. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Integer Holdings’s revenue to stall, a deceleration versus its 10.1% annualized growth for the past five years. This projection doesn't excite us and implies its products and services will see some demand headwinds.
3. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Integer Holdings’s margin dropped by 5.9 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity. Integer Holdings’s free cash flow margin for the trailing 12 months was 6.6%.
Final Judgment
Integer Holdings’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 13.6× forward P/E (or $85.78 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now. We’d recommend looking at a top digital advertising platform riding the creator economy.
Stocks We Like More Than Integer Holdings
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