Henry Schein has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 13.3% to $77.62 per share while the index has gained 12.2%.
Is now the time to buy Henry Schein, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
We're sitting this one out for now. Here are three reasons why you should be careful with HSIC and a stock we'd rather own.
Why Is Henry Schein Not Exciting?
Founded in 1932, Henry Schein (NASDAQ:HSIC) is a distributor of healthcare products and services, offering a broad portfolio of medical, dental, and veterinary supplies.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years. Over the last five years, Henry Schein grew its sales at a mediocre 5% compounded annual growth rate. This was below our standard for the healthcare sector. 
2. Core Business Falling Behind as Demand Declines
In addition to reported revenue, organic revenue is a useful data point for analyzing Dental Equipment & Technology companies. This metric gives visibility into Henry Schein’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Henry Schein’s organic revenue averaged 3% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Henry Schein might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
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. Unfortunately, Henry Schein’s ROIC has decreased over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Henry Schein isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 15.3× forward price-to-earnings (or $77.62 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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