3 Healthcare Stocks with Questionable Fundamentals

Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. But financial performance has lagged recently as players offloaded surplus COVID inventories in 2023 and 2024, a headwind for overall demand. The result? Over the past six months, the industry has tumbled by 15.5%. This drop was worse than the S&P 500’s 10% fall.

A cautious approach is imperative when dabbling in these businesses as regulation is another unpredictable element that can affect their earnings potential. With that said, here are three healthcare stocks best left ignored.

LifeStance Health Group (LFST)

Market Cap: $2.58 billion

With over 6,600 licensed mental health professionals treating more than 880,000 patients annually, LifeStance Health (NASDAQ:LFST) provides outpatient mental health services through a network of clinicians offering psychiatric evaluations, psychological testing, and therapy across 33 states.

Why Are We Cautious About LFST?

1. Modest revenue base of $1.25 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
2. Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 6.6 percentage points
3. Negative returns on capital show that some of its growth strategies have backfired

At $6.70 per share, LifeStance Health Group trades at 218.9x forward price-to-earnings. To fully understand why you should be careful with LFST, check out our full research report (it’s free).

Quest (DGX)

Market Cap: $18.18 billion

Processing approximately one-third of the adult U.S. population's lab tests annually, Quest Diagnostics (NYSE:DGX) provides laboratory testing and diagnostic information services to patients, physicians, hospitals, and other healthcare providers across the United States.

Why Are We Wary of DGX?

1. Underwhelming requisition volumes over the past two years indicate demand is soft and that the company may need to revise its strategy
2. Efficiency has decreased over the last five years as its adjusted operating margin fell by 7.8 percentage points
3. Waning returns on capital imply its previous profit engines are losing steam

Quest’s stock price of $163.61 implies a valuation ratio of 16.9x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than DGX.

GoodRx (GDRX)

Market Cap: $1.72 billion

Started in 2011 to tackle the problem of high prescription drug costs in America, GoodRx (NASDAQ:GDRX) operates a digital platform that helps consumers find lower prices on prescription medications through price comparison tools and discount codes.

Why Should You Sell GDRX?

1. 1.7% annual revenue growth over the last two years was slower than its healthcare peers
2. Revenue base of $792.3 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
3. Negative returns on capital show management lost money while trying to expand the business

GoodRx is trading at $4.49 per share, or 10.8x forward price-to-earnings. Check out our free in-depth research report to learn more about why GDRX doesn’t pass our bar.

Stocks We Like More

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.