Over the past six months, DaVita’s stock price fell to $136.71. Shareholders have lost 10% of their capital, which is disappointing considering the S&P 500 has climbed by 16%. This might have investors contemplating their next move.

Is there a buying opportunity in DaVita, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is DaVita Not Exciting?

Despite the more favorable entry price, we're swiping left on DaVita for now. Here are three reasons why DVA doesn't excite us and a stock we'd rather own.

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, DaVita’s sales grew at a tepid 2.7% compounded annual growth rate over the last five years. This was below our standards.

2. Sales Volumes Stall, Demand Waning

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful Outpatient & Specialty Care company because there’s a ceiling to what customers will pay.

Over the last two years, DaVita failed to grow its treatments, which came in at 7.19 million in the latest quarter. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests DaVita might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

3. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect DaVita’s revenue to rise by 3.4%, a slight deceleration versus its 2.7% annualized growth for the past five years. This projection doesn't excite us and indicates its products and services will see some demand headwinds.

Final Judgment

DaVita isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 11.6× forward P/E (or $136.71 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d suggest looking at the most entrenched endpoint security platform on the market.

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