While investors anticipate the Fed to turn dovish in light of the banking crisis, rising oil prices might lead to inflation remaining high in the foreseeable future. Since the high inflation is driving healthcare spending higher each passing day, it could be wise to steer clear of fundamentally weak medical stocks Pacific Biosciences of California, Inc. (PACB), DermTech, Inc. (DMTK), and Genetic Technologies Limited (GENE).
The healthcare business is becoming increasingly vulnerable to the effects of inflation. After two years of battling the impacts of COVID-19 and still dealing with the fallout from the pandemic, the healthcare industry is now confronted with a new set of issues.
Medical inflation has surpassed general inflation. According to the 2023 Global Medical Trends Survey conducted by WTW, medical expenses are expected to rise by 10% this year due to widespread inflation and increased demand for healthcare services. This compares to increases of 8.8% in 2022 and 8.2% in 2021.
Let’s dig deeper into the fundamentals of PACB, DMTK, and GENE to understand what makes them avoidable now.
Pacific Biosciences of California, Inc. (PACB)
PACB designs, develops, and produces sequencing technologies to tackle genetically complicated issues. The business sells sequencing devices, consumable goods such as single-molecule real-time (SMRT) cells, and a variety of reagent kits made for different workflows.
PACB’s trailing-12-month gross profit margin of 41.7% is 25.4% lower than the industry average of 55.9%. Also, its trailing-12-month EBITDA margin of negative 226.6% compares to the industry average of 2.7%.
For the fiscal fourth quarter (ended December 31, 2022), PACB’s total revenue decreased 24.1% year-over-year to $27.35 million. Its gross profit decreased 69.3% year-over-year to $5.14 million. The company’s net loss and net loss per share declined 21.7% and 19.4% year-over-year to $84.38 million and $0.37, respectively.
Analysts expect the company’s EPS to be negative $1.24 in fiscal 2023 and negative $1.06 in fiscal 2024. It failed to surpass the consensus EPS estimates in three of the trailing four quarters.
PACB’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of F, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a D grade for Value, Momentum, Stability, Sentiment, and Quality. Within the D-rated Medical - Diagnostics/Research industry, it is ranked #54 of 55 stocks. Click here to see the other ratings of PACB for Growth.
DermTech, Inc. (DMTK)
In the United States, DMTK, a molecular diagnostic firm, creates and sells cutting-edge non-invasive genomics tests to assist in the detection and treatment of a variety of skin problems, including inflammatory illnesses and skin cancer.
DMTK’s trailing-12-month gross profit margin of 4.5% is 92% lower than the industry average of 55.9%. Its trailing-12-month ROTA of negative 57.7% compares to the industry average of negative 31.7%. Also, its trailing-12-month ROCE of negative 64.46% compares to the industry average of negative 40.33%.
During the fourth quarter (ended December 31, 2022), DMTK’s total revenue decreased 5.4% year-over-year to $2.99 million. The company’s net loss widened 8.3% from the year-ago value to $28.22 million. Also, its loss per share came in at $0.93, widening 5.7% year-over-year.
Analysts expect DMTK’s EPS to be negative $3.50 for fiscal 2023 and negative $3.01. The stock has declined 36.4% over the past nine months to close the last trading session at $3.79.
DMTK’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It has an F grade for Stability and a D for Momentum and Quality. Within the same industry, it is ranked last. To see the DMTK’s rating for Growth, Value, and Sentiment, click here.
Genetic Technologies Limited (GENE)
In the United States, Canada, Europe, the Middle East, Africa, South America, and the Asia Pacific, GENE, a molecular diagnostics firm, offers tools for risk assessment and predictive genetic testing to assist clinicians in managing patients' health. It works in two segments: GeneType/Corporate and EasyDNA.
GENE’s trailing-12-month EBITDA margin of negative 80.5% compares to the industry average of 2.7%. Its ROTA of negative 55.5% compares to the industry average of negative 31.7%. Also, its ROCE of negative 57.2% compares to the industry average of negative 40.33%.
GENE’s trailing-12-month Capex/Sales of 0.18% compares to the industry average of 4.58%. The company’s cash outflow from operations was 5.21 million over the trailing 12 months. The stock has lost 12.8% over the past month to close the last trading session at $1.09.
GENE’s POWR Ratings reflect this weak outlook. It has an overall rating of F, equating to a Strong Sell in our proprietary rating system. It has an F grade for Stability and a D for Value, Momentum, and Quality. In the same industry, it is ranked #53.
Beyond what I’ve stated above, we have also given GENE grades for Growth and Sentiment. Get all the GENE ratings here.
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PACB shares fell $0.06 (-0.55%) in premarket trading Monday. Year-to-date, PACB has gained 33.25%, versus a 6.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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