Even though STERIS (currently trading at $242.37 per share) has gained 8.3% over the last six months, it has lagged the S&P 500’s 24.7% return during that period. This might have investors contemplating their next move.

Is there a buying opportunity in STERIS, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.

Why Is STERIS Not Exciting?

We're cautious about STERIS. Here is one reason why STE doesn't excite us and a stock we'd rather own.

Previous Growth Initiatives Haven’t Impressed

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).

STERIS historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.9%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.

Final Judgment

STERIS isn’t a terrible business, but it doesn’t pass our bar. With its shares lagging the market recently, the stock trades at 23.6× forward P/E (or $242.37 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at the most dominant software business in the world.

Stocks We Would Buy Instead of STERIS

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