What a fantastic six months it’s been for Lantheus. Shares of the company have skyrocketed 57%, hitting $83.14. This run-up might have investors contemplating their next move.
Is now the time to buy Lantheus, 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.
Why Is Lantheus Not Exciting?
We’re happy investors have made money, but we're sitting this one out for now. Here are three reasons why LNTH 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 $1.54 billion in revenue over the past 12 months, Lantheus 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. Revenue Projections Show Stormy Skies Ahead
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 Lantheus’s revenue to drop by 6.3%, a decrease from its 35.3% annualized growth for the past five years. This projection is underwhelming and suggests its products and services will face some demand challenges.
3. Shrinking Adjusted Operating Margin
Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.
Analyzing the trend in its profitability, Lantheus’s adjusted operating margin decreased by 10.1 percentage points over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 36%.
Final Judgment
Lantheus’s business quality ultimately falls short of our standards. Following the recent rally, the stock trades at 16× forward P/E (or $83.14 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at our favorite semiconductor picks and shovels play.
Stocks We Would Buy Instead of Lantheus
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