The past six months have been a windfall for Omnicell’s shareholders. The company’s stock price has jumped 80.2%, hitting $50.52 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is there a buying opportunity in Omnicell, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Do We Think Omnicell Will Underperform?

We’re happy investors have made money, but we're swiping left on Omnicell for now. Here are three reasons why OMCL doesn't excite us and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Omnicell’s sales grew at a mediocre 5.7% compounded annual growth rate over the last five years. This was below our standard for the healthcare sector.

2. Shrinking Adjusted Operating Margin

Adjusted operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D. It also removes various one-time costs to paint a better picture of normalized profits.

Looking at the trend in its profitability, Omnicell’s adjusted operating margin decreased by 9.5 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 7.9%.

3. 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.

Sadly for Omnicell, its EPS declined by 5.4% annually over the last five years while its revenue grew by 5.7%. This tells us the company became less profitable on a per-share basis as it expanded.

Final Judgment

Omnicell doesn’t pass our quality test. After the recent surge, the stock trades at 28.4× forward P/E (or $50.52 per share). This multiple tells us a lot of good news is priced in - you can find more timely opportunities elsewhere. Let us point you toward the most entrenched endpoint security platform on the market.

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