Abbott Laboratories currently trades at $131.61 per share and has shown little upside over the past six months, posting a small loss of 4.6%. The stock also fell short of the S&P 500’s 8.8% gain during that period.
Given the weaker price action, is now a good time to buy ABT? Or should investors expect a bumpy road ahead? Find out in our full research report, it’s free.
Why Does Abbott Laboratories Spark Debate?
With roots dating back to 1888 when founder Dr. Wallace Abbott began producing precise, dosage-form medications, Abbott Laboratories (NYSE: ABT) develops and sells a diverse range of healthcare products including medical devices, diagnostics, nutrition products, and branded generic pharmaceuticals.
Two Positive Attributes:
1. Economies of Scale Give It Negotiating Leverage with Suppliers
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 $43.11 billion in revenue over the past 12 months, Abbott Laboratories boasts impressive economies of scale. It may not be as large as heavyweights such as UnitedHealth Group and The Cigna Group from a topline perspective, but its heft is still an important advantage in a healthcare industry that is heavily regulated, complex, and resource-intensive.
2. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Abbott Laboratories’s EPS grew at a remarkable 10.2% compounded annual growth rate over the last five years, higher than its 6.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to be Careful:
Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Abbott Laboratories’s sales grew at a mediocre 6.5% compounded annual growth rate over the last five years. This wasn’t a great result compared to the rest of the healthcare sector, but there are still things to like about Abbott Laboratories.
Final Judgment
Abbott Laboratories’s positive characteristics outweigh the negatives. With its shares lagging the market recently, the stock trades at 24.2× forward P/E (or $131.61 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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