NeoGenomics has gotten torched over the last six months - since September 2024, its stock price has dropped 36.8% to $9.98 per share. This may have investors wondering how to approach the situation.
Is now the time to buy NeoGenomics, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons why NEO doesn't excite us and a stock we'd rather own.
Why Do We Think NeoGenomics Will Underperform?
Operating a network of CAP-accredited and CLIA-certified laboratories across the United States and United Kingdom, NeoGenomics (NASDAQ:NEO) provides specialized cancer diagnostic testing services, including genetic analysis, molecular testing, and pathology consultation for oncologists and healthcare providers.
1. 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 NeoGenomics, its EPS declined by 20.3% annually over the last five years while its revenue grew by 10.1%. This tells us the company became less profitable on a per-share basis as it expanded.
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).
NeoGenomics’s five-year average ROIC was negative 8.3%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
NeoGenomics burned through $34.04 million of cash over the last year, and its $605.3 million of debt exceeds the $386.8 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
Unless the NeoGenomics’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of NeoGenomics until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of NeoGenomics, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 49.4× forward price-to-earnings (or $9.98 per share). This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now. Let us point you toward the most entrenched endpoint security platform on the market.
Stocks We Like More Than NeoGenomics
The Trump trade may have passed, but rates are still dropping and inflation is still cooling. Opportunities are ripe for those ready to act - and we’re here to help you pick them.
Get started by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.