Over the last six months, Envista’s shares have sunk to $18.73, producing a disappointing 6.4% loss while the S&P 500 was flat. This may have investors wondering how to approach the situation.
Is now the time to buy Envista, 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 Do We Think Envista Will Underperform?
Even with the cheaper entry price, we're cautious about Envista. Here are three reasons why you should be careful with NVST and a stock we'd rather own.
1. Constant Currency Revenue Hits a Standstill
Investors interested in Dental Equipment & Technology companies should track constant currency revenue in addition to reported revenue. This metric excludes currency movements, which are outside of Envista’s control and are not indicative of underlying demand.
Over the last two years, Envista failed to grow its constant currency revenue. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Envista might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Envista, its EPS declined by 13.9% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative 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, Envista’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
Envista falls short of our quality standards. After the recent drawdown, the stock trades at 18.3× forward P/E (or $18.73 per share). At this valuation, there’s a lot of good news priced in - you can find better investment opportunities elsewhere. We’d suggest looking at our favorite semiconductor picks and shovels play.
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