Over the last six months, Ocular Therapeutix’s shares have sunk to $7.74, producing a disappointing 7.1% loss - a stark contrast to the S&P 500’s 16.6% gain. This might have investors contemplating their next move.
Is now the time to buy Ocular Therapeutix, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Ocular Therapeutix Will Underperform?
Even though the stock has become cheaper, we’re cautious about Ocular Therapeutix. Here are three reasons you should be careful with OCUL, plus one stock we’d rather own.
1. Revenue Tumbling Downwards
We at StockStory place the most emphasis on long-term growth, but within healthcare, a stretched historical view may miss recent innovations or disruptive industry trends. Ocular Therapeutix’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 7.7% over the last two years. 
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Ocular Therapeutix’s earnings losses deepened over the last five years as its EPS dropped 7.5% annually. We tend to steer our readers away from companies with falling EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Ocular Therapeutix’s low margin of safety could leave its stock price susceptible to large downswings.
3. 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, Ocular Therapeutix’s margin dropped meaningfully over the last five years. Almost any movement in the wrong direction is undesirable because it is already burning cash. If the trend continues, it could signal it’s in the middle of a big investment cycle. Ocular Therapeutix’s free cash flow margin for the trailing 12 months was negative 490%.
Final Judgment
Ocular Therapeutix falls short of our quality standards. Following the recent decline, the stock trades at $7.74 per share (or a forward price-to-sales ratio of 30.8×). The market typically values companies like Ocular Therapeutix based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy. We’d suggest looking at one of our top digital advertising picks.
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