Integer Holdings trades at $113.57 per share and has stayed right on track with the overall market, losing 11.4% over the last six months while the S&P 500 is down 7.7%. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Integer Holdings, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Even with the cheaper entry price, we don't have much confidence in Integer Holdings. Here are three reasons why you should be careful with ITGR and a stock we'd rather own.
Why Is Integer Holdings Not Exciting?
With its name reflecting the mathematical term for "whole" or "complete," Integer Holdings (NYSE: ITGR) is a medical device outsource manufacturer that produces components and systems for cardiac, vascular, neurological, and other medical applications.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Integer Holdings’s sales grew at a mediocre 6.4% compounded annual growth rate over the last five years. This was below our standard for the healthcare sector. 
2. 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 $1.72 billion in revenue over the past 12 months, Integer Holdings 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.
3. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Integer Holdings’s margin dropped by 6.7 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Integer Holdings’s free cash flow margin for the trailing 12 months was 5.8%.
Final Judgment
Integer Holdings’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 19.3× forward price-to-earnings (or $113.57 per share). At this valuation, there’s a lot of good news priced in - we think there are better investment opportunities out there. We’d recommend looking at one of our top digital advertising picks.
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