Since December 2024, Henry Schein has been in a holding pattern, posting a small return of 2.9% while floating around $72.06.
Is there a buying opportunity in Henry Schein, 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 Is Henry Schein Not Exciting?
We're cautious about 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
We can better understand Dental Equipment & Technology companies by analyzing their organic 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 2% 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. 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 Henry Schein’s revenue to rise by 3.4%. While this projection indicates its newer products and services will catalyze better top-line performance, it is still below average for the sector.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared 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 bar. That said, the stock currently trades at 14.5× forward P/E (or $72.06 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.
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