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Even during a down period for the markets, Progyny has gone against the grain, climbing to $22.52. Its shares have yielded a 40% return over the last six months, beating the S&P 500 by 54.3%. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Progyny, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
We’re glad investors have benefited from the price increase, but we're cautious about Progyny. Here are three reasons why there are better opportunities than PGNY and a stock we'd rather own.
Why Is Progyny Not Exciting?
Pioneering a data-driven approach to family building that has achieved an industry-leading patient satisfaction score of +80, Progyny (NASDAQ:PGNY) provides comprehensive fertility and family building benefits solutions to employers, helping employees access quality fertility treatments and support services.
1. Fewer Distribution Channels Limit its Ceiling
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With just $1.17 billion in revenue over the past 12 months, Progyny is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.
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 Progyny’s revenue to rise by 3.9%, a deceleration versus its 21.8% annualized growth for the past two years. This projection is underwhelming and suggests its products and services will face some demand challenges.
3. Previous Growth Initiatives Have Lost Money
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Progyny’s five-year average ROIC was negative 13.3%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.