Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Here's How Omnicell May Be Failing You

By Seth Jayson - Updated Apr 6, 2017 at 10:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Keep your eye on margins.

Margins matter. The more Omnicell (Nasdaq: OMCL) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. Healthy margins often separate pretenders from the best stocks in the market.  That's why I check on my holdings' margins at least once a quarter. I'm looking for the absolute numbers, comparisons to sector peers and competitors, and any trend that may tell me how strong Omnicell's competitive position could be.

Here's the current margin snapshot for Omnicell and some of its sector and industry peers and direct competitors.

Company

TTM Gross Margin

TTM Operating Margin

TTM Net Margin

 Omnicell

53.0%

3.7%

2.2%

 Cerner (Nasdaq: CERN)

82.7%

19.4%

12.8%

 CareFusion (NYSE: CFN)

47.5%

13.5%

4.0%

 AmerisourceBergen (NYSE: ABC)

3.0%

1.4%

0.8%

Source: Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.

Unfortunately, that table doesn't tell us much about where Omnicell has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.

Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months (TTM), the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.

Here's the margin picture for Omnicell over the past few years.

Source: Capital IQ, a division of Standard & Poor's. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.

(Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them.)

Here's how the stats break down:

  • Over the past five years, gross margin peaked at 55.3% and averaged 52.5%. Operating margin peaked at 8.7% and averaged 5.4%. Net margin peaked at 20.3% and averaged 6.9%.
  • TTM gross margin is 53%, 50 basis points better than the five-year average. TTM operating margin is 3.7%, 170 basis points worse than the five-year average. TTM net margin is 2.2%, 470 basis points worse than the five-year average.

With recent TTM operating margins below historical averages, Omnicell has some work to do.

If you take the time to read past the headlines and crack a filing now and then, you're probably ahead of 95% of the market's individual investors. To stay ahead, learn more about how I use analysis like this to help me uncover the best returns in the stock market.  Got an opinion on the margins at Omnicell? Let us know in the comments below.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Omnicell, Inc. Stock Quote
Omnicell, Inc.
OMCL
$177.11 (0.41%) $0.72
AmerisourceBergen Corporation Stock Quote
AmerisourceBergen Corporation
ABC
$115.80 (1.51%) $1.72
Cerner Corporation Stock Quote
Cerner Corporation
CERN
$71.87 (2.66%) $1.86

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
634%
 
S&P 500 Returns
141%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/03/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.