Henry Schein currently trades at $64.88 per share and has shown little upside over the past six months, posting a middling return of 3.5%. The stock also fell short of the S&P 500’s 34.7% gain during that period.
Is now the time to buy Henry Schein, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.
Why Is Henry Schein Not Exciting?
We don't have much confidence in Henry Schein. Here are three reasons why HSIC doesn't excite us and a stock we'd rather own.
1. Core Business Falling Behind as Demand Declines
Investors interested in Dental Equipment & Technology companies should track organic revenue in addition to reported revenue. This metric gives visibility into Henry Schein’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Henry Schein’s organic revenue averaged 1.7% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Henry Schein might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
2. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Henry Schein’s margin dropped by 3.6 percentage points over the last five years. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business. Henry Schein’s free cash flow margin for the trailing 12 months was 3%.
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, Henry Schein’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Henry Schein isn’t a terrible business, but it doesn’t pass our quality test. With its shares lagging the market recently, the stock trades at 12.8× forward P/E (or $64.88 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now. We’d recommend looking at the most dominant software business in the world.
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