Myriad Genetics has been treading water for the past six months, recording a small loss of 3.6% while holding steady at $5.66. The stock also fell short of the S&P 500’s 8.6% gain during that period.
Is now the time to buy Myriad Genetics, 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 Do We Think Myriad Genetics Will Underperform?
We don’t have much confidence in Myriad Genetics. Here are three reasons why MYGN doesn’t excite us, plus one stock we’d rather own.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within healthcare, a stretched historical view may miss new innovations or demand cycles. Myriad Genetics’s recent performance shows its demand has slowed as its annualized revenue growth of 3.5% 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 37.1%, 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
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).
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. With its shares underperforming the market lately, the stock trades at 51.6× forward P/E (or $5.66 per share). This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere. We’d recommend looking at the most dominant software business in the world.
Stocks We Like More Than Myriad Genetics
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