Over the past six months, Regeneron’s stock price fell to $587.01. Shareholders have lost 11.7% of their capital, which is disappointing considering the S&P 500 has climbed by 17.5%. This may have investors wondering how to approach the situation.

Is now the time to buy Regeneron, 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.

Why Is Regeneron Not Exciting?

Even though the stock has become cheaper, we're cautious about Regeneron. Here are three reasons there are better opportunities than REGN and a stock we'd rather own.

1. Lackluster Revenue Growth

We at StockStory place the most emphasis on long-term growth, but within healthcare, a stretched historical view may miss recent innovations or disruptive industry trends. Regeneron’s recent performance shows its demand has slowed as its annualized revenue growth of 5.9% over the last two years was below its five-year trend.

2. Shrinking Adjusted Operating Margin

Adjusted operating margin is a key measure of profitability. Think of it as net income (the bottom line) excluding the impact of non-recurring expenses, taxes, and interest on debt - metrics less connected to business fundamentals.

Looking at the trend in its profitability, Regeneron’s adjusted operating margin decreased by 21.4 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 35.6%.

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, Regeneron’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Regeneron isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 16.1× forward P/E (or $587.01 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d recommend looking at the most dominant software business in the world.

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