Dentsply Sirona has been treading water for the past six months, recording a small loss of 0.5% while holding steady at $12.66. The stock also fell short of the S&P 500’s 7.9% gain during that period.
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Why Do We Think Dentsply Sirona Will Underperform?
We’re passing on Dentsply Sirona for now. Here are three reasons we avoid XRAY, plus one stock we’d rather own.
1. Declining Constant Currency Revenue, Demand Takes a Hit
In addition to reported revenue, constant currency revenue is a useful data point for analyzing Dental Equipment & Technology companies. This metric excludes currency movements, which are outside of Dentsply Sirona’s control and are not indicative of underlying demand.
Over the last two years, Dentsply Sirona’s constant currency revenue averaged 5.7% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Dentsply Sirona might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Dentsply Sirona, its EPS declined by 7.2% annually over the last five years while its revenue grew by 1.1%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Previous Growth Initiatives Have Lost Money
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Dentsply Sirona’s five-year average ROIC was negative 11.9%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.
Final Judgment
Dentsply Sirona falls short of our quality standards. With its shares trailing the market in recent months, the stock trades at 9× forward P/E (or $12.66 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. We’d recommend looking at one of our top software and edge computing picks.
Stocks We Would Buy Instead of Dentsply Sirona
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