Shareholders of Myriad Genetics would probably like to forget the past six months even happened. The stock dropped 31.8% and now trades at $5.24. This may have investors wondering how to approach the situation.

Is now the time to buy Myriad Genetics, 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 Do We Think Myriad Genetics Will Underperform?

Despite the more favorable entry price, we're swiping left on Myriad Genetics for now. Here are three reasons we avoid MYGN and a stock we'd rather own.

1. Lackluster Revenue Growth

We at StockStory place the most emphasis on long-term growth, but within healthcare, a stretched historical view may miss recent innovations or disruptive industry trends. Myriad Genetics’s recent performance shows its demand has slowed as its annualized revenue growth of 4.6% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs.

2. Previous Growth Initiatives Have Lost Money

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Myriad Genetics’s five-year average ROIC was negative 34.3%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared 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, Myriad Genetics’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

Myriad Genetics doesn’t pass our quality test. Following the recent decline, the stock trades at 70.7× forward P/E (or $5.24 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. We’d suggest looking at the Amazon and PayPal of Latin America.

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