Bio-Techne’s 21% return over the past six months has outpaced the S&P 500 by 10.9%, and its stock price has climbed to $62.36 per share. This performance may have investors wondering how to approach the situation.
Is now the time to buy Bio-Techne, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.
Why Do We Think Bio-Techne Will Underperform?
We’re glad investors have benefited from the price increase, but we're cautious about Bio-Techne. Here are three reasons we avoid TECH and a stock we'd rather own.
1. Slow Organic Growth Suggests Waning Demand In Core Business
Investors interested in Research Tools & Consumables companies should track organic revenue in addition to reported revenue. This metric gives visibility into Bio-Techne’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, Bio-Techne’s organic revenue averaged 2.8% year-on-year growth. This performance slightly lagged the sector and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations. 
2. 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 $1.22 billion in revenue over the past 12 months, Bio-Techne 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.
3. 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, Bio-Techne’s margin dropped by 11.6 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Bio-Techne’s free cash flow margin for the trailing 12 months was 18.4%.
Final Judgment
Bio-Techne doesn’t pass our quality test. With its shares topping the market in recent months, the stock trades at 29.5× forward P/E (or $62.36 per share). At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere. We’d recommend looking at one of our all-time favorite software stocks.
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