Over the past six months, Privia Health’s stock price fell to $19.75. Shareholders have lost 13.6% of their capital, which is disappointing considering the S&P 500 has climbed by 5.8%. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Privia Health, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Privia Health Not Exciting?
Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons why PRVA doesn't excite us and a stock we'd rather own.
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 $1.80 billion in revenue over the past 12 months, Privia Health 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. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Privia Health has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.6%, subpar for a healthcare business.
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? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Privia Health’s five-year average ROIC was negative 2%, meaning management lost money while trying to expand the business. Investors are likely hoping for a change soon.
Final Judgment
Privia Health isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 23.1× forward P/E (or $19.75 per share). This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere. Let us point you toward one of our top digital advertising picks.
Stocks We Like More Than Privia Health
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