CONMED has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 11% to $51.11 per share while the index has gained 10.9%.
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Why Is CONMED Not Exciting?
We’re cautious about CONMED. Here are three reasons you should be careful with CNMD, plus one stock we’d rather own.
1. Weak Constant Currency Growth Points to Soft Demand
We can better understand Surgical Equipment & Consumables - Diversified companies by analyzing their constant currency revenue. This metric excludes currency movements, which are outside of CONMED’s control and are not indicative of underlying demand.
Over the last two years, CONMED’s constant currency revenue averaged 4.8% year-on-year growth. This performance slightly lagged the sector and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
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 $1.37 billion in revenue over the past 12 months, CONMED 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. 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 CONMED’s revenue to rise by 1.9%, a slight deceleration versus its 7% annualized growth for the past five years. This projection is underwhelming and suggests its products and services will see some demand headwinds.
Final Judgment
CONMED isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 11.5× forward P/E (or $51.11 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We’re fairly confident there are better stocks to buy right now. Let us point you toward the Amazon and PayPal of Latin America.
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