Over the last six months, Teleflex’s shares have sunk to $111.34, producing a disappointing 12.2% loss - a stark contrast to the S&P 500’s 16.4% gain. This may have investors wondering how to approach the situation.
Is now the time to buy Teleflex, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free for active Edge members.
Why Is Teleflex Not Exciting?
Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons we avoid TFX and a stock we'd rather own.
1. Weak Constant Currency Growth Points to Soft Demand
Investors interested in Surgical Equipment & Consumables - Specialty companies should track constant currency revenue in addition to reported revenue. This metric excludes currency movements, which are outside of Teleflex’s control and are not indicative of underlying demand.
Over the last two years, Teleflex’s constant currency revenue averaged 3% year-on-year growth. This performance slightly lagged the sector and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Teleflex’s margin dropped by 12.1 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Teleflex’s free cash flow margin for the trailing 12 months was 8.4%.
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).
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, Teleflex’s ROIC has decreased 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
Teleflex isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 7.6× forward P/E (or $111.34 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at a top digital advertising platform riding the creator economy.
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