Over the past six months, CooperCompanies has been a great trade, beating the S&P 500 by 5.9%. Its stock price has climbed to $82.42, representing a healthy 19.9% increase. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is there a buying opportunity in CooperCompanies, 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 for active Edge members.
Why Is CooperCompanies Not Exciting?
Despite the momentum, we don't have much confidence in CooperCompanies. Here are three reasons there are better opportunities than COO and a stock we'd rather own.
1. Lackluster Revenue Growth
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. CooperCompanies’s recent performance shows its demand has slowed as its annualized revenue growth of 6.7% over the last two years was below its five-year trend. 
2. 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, CooperCompanies’s margin dropped by 7.3 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity. CooperCompanies’s free cash flow margin for the trailing 12 months was 10.6%.
3. Previous Growth Initiatives Haven’t Impressed
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).
CooperCompanies historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5%, somewhat low compared to the best healthcare companies that consistently pump out 20%+.
Final Judgment
CooperCompanies isn’t a terrible business, but it isn’t one of our picks. With its shares beating the market recently, the stock trades at 18.1× forward P/E (or $82.42 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward one of our top digital advertising picks.
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