Shareholders of Danaher would probably like to forget the past six months even happened. The stock dropped 23.9% and now trades at $207. This might have investors contemplating their next move.

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

Despite the more favorable entry price, we're cautious about Danaher. Here are three reasons why we avoid DHR and a stock we'd rather own.

Why Is Danaher Not Exciting?

Started as a real estate investment trust, Danaher (NYSE:DHR) designs and manufactures professional, medical, industrial, and commercial products and services.

1. Core Business Falling Behind as Demand Declines

In addition to reported revenue, organic revenue is a useful data point for analyzing Research Tools & Consumables companies. This metric gives visibility into Danaher’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Danaher’s organic revenue averaged 5.4% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Danaher might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

2. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Danaher’s revenue to rise by 1.1%. While this projection indicates its newer products and services will fuel better top-line performance, it is still below average for the sector.

3. Shrinking Adjusted Operating Margin

Adjusted operating margin is a key measure of profitability. Think of it as net income (the bottom line) excluding the impact of non-recurring expenses, taxes, and interest on debt - metrics less connected to business fundamentals.

Looking at the trend in its profitability, Danaher’s adjusted operating margin decreased by 5.2 percentage points over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 28.6%.

Final Judgment

Danaher isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 25.4× forward price-to-earnings (or $207 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find better investment opportunities elsewhere. Let us point you toward a top digital advertising platform riding the creator economy.

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