Image source: Getty Images
blacksmith and nephew (LSE: SN.) Stocks have taken a big hit in recent years. Before Covid, the orthopedic company’s shares were trading around the £20 mark. Today, however, they can be picked up for around £12.
Is this a great buying opportunity for long term investors? We’ll see.
Why did the stock price fall?
Smith & Nephew has certainly faced its fair share of challenges in recent years. During the Covid pandemic, many elective surgeries have been postponed. This had a huge impact on the company’s sales.
The company has also faced supply chain problems. In recent years, hip and knee implants have become unexpected victims of raw material shortages.
On top of this, Smith & Nephew has had to deal with inflationary pressures. Margins have been affected by higher costs of basic products and salaries.
Finally, growth has also been affected by currency issues, as the company reports in US dollars.
In general, the operating environment has been very challenging.
improving perspective
However, now it looks like Smith & Nephew is starting to turn the corner.
In a recent business update, the healthcare company reported that it expects revenue growth of 5-6% by 2023, up from the 4.7% level reported for 2022.
It also said it expects its medium-term business profit margin to expand to at least 20% in 2025, up from 17.3% in 2022, thanks to improvements in productivity.
We expect to deliver faster revenue growth and margin expansion in the coming year, and we are laying a solid foundation for our medium-term ambitions as we transform into a consistently higher growth company.
Smith & Nephew CEO Deepak Nath
All this is very encouraging.
In the longer term, in my opinion, the prospects for the company remain attractive.
This is a business that is well positioned to benefit from the aging of the world’s population. A greater number of people over the age of 65 worldwide should drive demand for orthopedic products.
According to Precedence Research, the knee implant market is expected to grow by about 6% per year between now and 2030.
Valuation
In terms of stock valuation, it’s relatively attractive right now, in my opinion.
Analysts currently expect Smith & Nephew to post earnings per share of 85.3 cents by 2023. That puts the stock at a prospective price-earnings (P/E) ratio of around 17.
Now that multiple is higher than the FTSE 100 average. However, it is significantly lower than its US-listed rival. Stryker, which currently has a P/E ratio of around 26.
At the current valuation, I think there is potential for a multiple appreciation if the company can show that business performance is improving and that its transformation plan is working.
Risk/reward attractiveness
Of course, there are risks here. In the company’s recent results, he noted that it will continue to face macroeconomic headwinds in 2023.
It’s worth noting that Smith & Nephew did not recently increase its dividend for 2022. This suggests that management is a bit cautious about the future.
Overall though, I like the risk/reward proposition at this point. At the current stock price, I view the stock as a buy.
var config = {
apiKey: ‘1ed121d592e04642d57912bb369ef696621661a3’,
product: ‘PRO_MULTISITE’,
logConsent: false,
notifyOnce: false,
initialState: ‘NOTIFY’,
position: ‘LEFT’,
theme: ‘DARK’,
layout: ‘SLIDEOUT’,
toggleType: ‘slider’,
iabCMP: false,
closeStyle: ‘button’,
consentCookieExpiry: 90,
subDomains : true,
rejectButton: false,
settingsStyle : ‘button’,
encodeCookie : false,
accessibility: {
accessKey: ‘C’,
highlightFocus: false },
onLoad: function () { // hide Cookie Control recommended settings button.
var recommendedSettingsButton = document.getElementById(‘ccc-recommended-settings’);
if (recommendedSettingsButton) {
recommendedSettingsButton.classList.add(‘hide’);
} },
text: {
title: ‘Privacy Notice’,
intro: ‘This site uses cookies, pixels, and other similar technologies to improve your web site experience and to deliver you personalised ads about our own and third party products and services. Please read more about how we collect and use data about you in this way in our Cookies Statement in our Privacy Policy. You can change your cookie settings in your browser at any time. ‘,
necessaryTitle: ”,
necessaryDescription: ”,
thirdPartyTitle: ‘Warning: Some cookies require your attention’,
thirdPartyDescription: ‘Consent for the following cookies could not be automatically revoked. Please follow the link(s) below to opt out manually.’,
on: ‘On’,
off: ‘Off’,
accept: ‘Accept’,
settings: ‘Cookie Preferences’,
acceptRecommended: ‘Accept Recommended Settings’,
notifyTitle: ‘Privacy Notice’,
notifyDescription: ‘This site uses cookies, pixels, and other similar technologies to improve your web site experience and to deliver you personalised ads about our own and third party products and services. Please read more about how we collect and use data about you in this way in our Cookies Statement in our Privacy Policy. You can change your cookie settings in your browser at any time. ‘,
closeLabel: ‘Save Preferences and Close’,
accessibilityAlert: ‘This site uses cookies to store information. Press accesskey C to learn more about your options.’,
rejectSettings: ‘Reject All’,
reject: ‘Reject’,
},
branding: {
fontColor: ‘#fff’,
fontFamily: ‘Arial,sans-serif’,
fontSizeTitle: ‘1.2em’,
fontSizeHeaders: ‘1em’,
fontSize: ‘1em’,
backgroundColor: ‘#313147’,
toggleText: ‘#fff’,
toggleColor: ‘#2f2f5f’,
toggleBackground: ‘#111125’,
alertText: ‘#fff’,
alertBackground: ‘#111125’,
acceptText: ‘#ffffff’,
acceptBackground: ‘#111125′,
buttonIcon: null,
buttonIconWidth: ’64px’,
buttonIconHeight: ’64px’,
removeIcon: false,
removeAbout: false },
necessaryCookies: ( ‘wordpress_*’,’wordpress_logged_in_*’,’CookieControl’,’PHPSESSID’,’fivc’,’fivs’,’fivp’,’Ookie’,’Fool_subinfo’,’_gads’,’_gid’,’_gat’,’_ga’,’__utma’ ),
optionalCookies: (
{
name: ‘Sharing’,
label: ‘I would like content tailored to my personal preferences.’,
description: ‘We work with advertising partners to show you ads of products and services you may be interested in. You can choose whether or not to have ads delivered in a personalised way by setting this option. You can return to review this setting at any time by clicking the "C" logo in the bottom left corner of any page.’,
cookies: ( ‘_ga’, ‘_gid’, ‘_gat’, ‘__utma’, ‘_gads’ ),
onAccept: function () {
// Add Facebook Pixel
!function(f,b,e,v,n,t,s)
{if(f.fbq)return;n=f.fbq=function(){n.callMethod?
n.callMethod.apply(n,arguments):n.queue.push(arguments)};
if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version=’2.0′;
n.queue=();t=b.createElement(e);t.async=!0;
t.src=v;s=b.getElementsByTagName(e)(0);
s.parentNode.insertBefore(t,s)}(window,document,’script’,
‘https://connect.facebook.net/en_US/fbevents.js’);
fbq(‘init’, ‘901682110316659’);
fbq(‘track’, ‘PageView’);
fbq(‘consent’, ‘grant’);
// End Facebook Pixel
// Enable Google ad personalization
// gtag (‘set’, ‘allow_ad_personalization_signals’, true ) ;
},
onRevoke: function () {
fbq(‘consent’, ‘revoke’);
// Enable Google ad personalization
// gtag (‘set’, ‘allow_ad_personalization_signals’, false ) ;
},
recommendedState: ‘on’,
lawfulBasis: ‘consent’,
},
),
statement: {
description: ”,
name: ”,
url: ‘https://www.fool.co.uk/help/privacy-and-cookie-statement/’,
updated: ”
},
};
CookieControl.load(config);
