Shareholders of Myriad Genetics would probably like to forget the past six months even happened. The stock dropped 53.4% and now trades at $6.10. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Myriad Genetics, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Myriad Genetics Will Underperform?
Even though the stock has become cheaper, we're cautious about Myriad Genetics. Here are three reasons why MYGN doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Myriad Genetics’s 5.5% annualized revenue growth over the last five years was mediocre. This was below our standard for the healthcare sector. 
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 31.8%, 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).
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. Over the last few years, Myriad Genetics’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
Myriad Genetics falls short of our quality standards. After the recent drawdown, the stock trades at 71.1× forward P/E (or $6.10 per share). This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere. Let us point you toward the most entrenched endpoint security platform on the market.
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