Abbott Laboratories’s 16.6% return over the past six months has outpaced the S&P 500 by 12.8%, and its stock price has climbed to $136.50 per share. This run-up might have investors contemplating their next move.
Is now the time to buy Abbott Laboratories, 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.
We’re happy investors have made money, but we're swiping left on Abbott Laboratories for now. Here are three reasons why there are better opportunities than ABT and a stock we'd rather own.
Why Is Abbott Laboratories Not Exciting?
Founded in 1888 as a small pharmaceutical company, Abbott Laboratories (NYSE:ABT) develops and sells a wide range of nutrition products, medical devices, and branded pharmaceuticals.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Abbott Laboratories’s 5.6% annualized revenue growth over the last five years was mediocre. This was below our standard for the healthcare sector. 
2. Slow Organic Growth Suggests Waning Demand In Core Business
We can better understand Medical Devices & Supplies - Diversified companies by analyzing their organic revenue. This metric gives visibility into Abbott Laboratories’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, Abbott Laboratories’s organic revenue averaged 1.1% year-on-year growth. This performance was underwhelming 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. 
3. Shrinking Adjusted Operating Margin
Adjusted operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D. It also removes various one-time costs to paint a better picture of normalized profits.
Analyzing the trend in its profitability, Abbott Laboratories’s adjusted operating margin decreased by 3.6 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 22.2%.
Final Judgment
Abbott Laboratories isn’t a terrible business, but it doesn’t pass our quality test. With its shares outperforming the market lately, the stock trades at 26.6× forward price-to-earnings (or $136.50 per share). This multiple tells us a lot of good news is priced in - we think there are better investment opportunities out there. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Would Buy Instead of Abbott Laboratories
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