Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. But speed bumps such as inventory destockings have persisted in the wake of COVID-19, and over the past six months, the industry has pulled back by 14.8%. This performance was worse than the S&P 500’s 8.5% decline.

While some businesses have durable competitive advantages that enable them to grow consistently, the odds aren’t great for the ones we’re analyzing today. Keeping that in mind, here are three healthcare stocks best left ignored.

Masimo (MASI)

Market Cap: $8.23 billion

Founded in 1989 to solve the "unsolvable problem" of accurate pulse oximetry during patient movement, Masimo (NASDAQ:MASI) develops and manufactures noninvasive patient monitoring technologies, including its breakthrough pulse oximetry systems that accurately measure blood oxygen levels even during patient movement.

Why Are We Wary of MASI?

1. Weak constant currency growth over the past two years indicates challenges in maintaining its market share
2. Forecasted revenue decline of 27.6% for the upcoming 12 months implies demand will fall off a cliff
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $151.90 per share, Masimo trades at 33.4x forward price-to-earnings. Check out our free in-depth research report to learn more about why MASI doesn’t pass our bar.

STERIS (STE)

Market Cap: $21.72 billion

With a mission critical role in preventing healthcare-associated infections, STERIS (NYSE:STE) provides infection prevention products, sterilization services, and medical equipment that help healthcare facilities and life science companies maintain sterile environments.

Why Are We Hesitant About STE?

1. Static adjusted operating margin over the last two years shows it couldn’t become more efficient
2. Free cash flow margin shrank by 1.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. ROIC of 4.9% reflects management’s challenges in identifying attractive investment opportunities

STERIS’s stock price of $221.01 implies a valuation ratio of 22.6x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than STE.

LeMaitre (LMAT)

Market Cap: $1.91 billion

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.

Why Are We Cautious About LMAT?

1. Modest revenue base of $219.9 million gives it less fixed cost leverage and fewer distribution channels than larger companies
2. Free cash flow margin dropped by 7.7 percentage points over the last five years, implying the company became more capital intensive as competition picked up

LeMaitre is trading at $83.51 per share, or 39x forward price-to-earnings. To fully understand why you should be careful with LMAT, check out our full research report (it’s free).

Stocks We Like More

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

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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.