Over the past six months, LeMaitre’s shares (currently trading at $83.18) have posted a disappointing 10.5% loss while the S&P 500 was down 4.1%. This may have investors wondering how to approach the situation.

Is there a buying opportunity in LeMaitre, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Even with the cheaper entry price, we don't have much confidence in LeMaitre. Here are two reasons why you should be careful with LMAT and a stock we'd rather own.

Why Is LeMaitre Not Exciting?

Founded in 1983 and named after a pioneering vascular surgeon, LeMaitre Vascular (NASDAQGM:LMAT) develops and manufactures specialized medical devices used by vascular surgeons to treat peripheral vascular disease and other circulatory conditions.

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 $219.9 million in revenue over the past 12 months, LeMaitre 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. Free Cash Flow Margin Dropping

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.

As you can see below, LeMaitre’s margin dropped by 7.7 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. LeMaitre’s free cash flow margin for the trailing 12 months was 16.9%.

Final Judgment

LeMaitre isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 38.3× forward price-to-earnings (or $83.18 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better investment opportunities out there. We’d suggest looking at the most entrenched endpoint security platform on the market.

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