About Stericycle
Although the likelihood that one has heard of Stericycle is rather low, this company serves a crucial societal purpose.
Headquartered in Bannockburn, Illinois, Stericycle helps plenty of companies safely and securely dispose of their waste to both adhere to mandated compliance standards and also keep everyone safe from handling, consuming or being around and subsequently being harmed or damaged by substances or other material that is dangerous to be around.
Evidently, the company’s bread and butter is serving businesses and organizations such as surgical centers, doctor’s offices, dental clinics, pharmaceutical lab settings, nursing facilities, hospitals and other similar venues that are tasked with handling and properly (and safely) disposing of potentially harmful waste such as fluids and other materials.
Interestingly, the company also seems to be intent on moving into the document shredding realm as it acquired one of the leaders in that space, Shred-it, for $2.3 billion in 2015.
Nevertheless, we enjoy the fact that Stericycle serves a very important role and we are also happy to find that it operates a business-to-business (B2B) business model, which allows it to be a bit more insulated from recessionary pressures, as it is typically much more difficult for individuals to pay for services when the economic backdrop oozes doom and gloom as opposed to a large-scale hospital system with wide enough margins that, in more cases than none, is required to use Stericycle’s services.
Therefore, this company is probably fairly recession resistant and, especially in recent history, has hopefully seen some growth through the onset of COVID-19 and other public health related scares.
At the end of the day, this is how Stericycle gets paid, these are some of the competitors it serves and this is one of the reasons we like the premise of its business as well as the industry it operates within.
Now, let’s get right into the company’s core financials and other related figures so as to determine whether or not its stock (NASDAQ: SRCL) is worth considering buying and holding for the long haul.
Stericycle’s stock financials
With a prevailing market capitalization of $4.1 billion, a share price of $44.38, a price-to-earnings (P/E) ratio of 49.50 and no annually distributed dividend offered to its investor base, shares of this company’s stock seem expensive relative to what they’re actually worth paying for, as its P/E ratio is well above that of the generally accepted fair value benchmark of 20.
This isn’t the end of the world by any means but it certainly isn’t the best of starts.
Moving onto the state of the company’s balance sheet, Stericycle’s executive team is tasked with handling and managing around $5.3 billion in total assets along with approximately $2.9 billion in total liabilities.
This is about as bland an overall balance sheet structure that we expected and frankly, we have no complaints, as its total assets outweigh the amount of its total liabilities by a wide enough margin that makes us comfortable, however, the company still also has some debt(s) to take care of over the long-term.
As it relates to the company’s income statement, Stericycle’s total annual revenues since 2018 have been disappointing, to say the least.
For instance, its total revenue in 2018 and 2019 remained at around $3.4 billion and as reported in the following years, when COVID-19 was ramping up and there was likely an extraordinary amount of demand for the company’s products and services, its revenues declined by a notable margin.
Specifically, in 2020 Stericycle’s total revenue sat at a little less than $2.7 billion, where the company’s total annual revenue has since floated around ever since the onset of COVID-19.
To us, this is a big red flag.
Why in the world would a company that specializes in transportation and proper disposing of waste and other harmful (used medical) materials experience a drop in total annual revenue while a massive increase in testing was occurring?
Perhaps more and more companies that deal with this sort of material opted to cut costs and dispose of their waste in-house instead of paying a company like Stericycle.
If this is the case, this scares us a lot and makes us not want to pay a sizable premium for shares in the company’s stock (NASDAQ: SRCL), if even thinking about picking up any shares at all.
Nevertheless, moving to the company’s cash flow statement, this company has been trudging closer and closer (generally speaking) to being net income positive over the years, particularly as its net income in 2018 stood at a substantial -$246 million, -$346 million the following year, -$56 million the year after that, -$27 million in 2021, up to its latest reported figure of $57 million in 2022, according to TD Ameritrade’s platform.
What is puzzling to us is the fact that this company isn’t new, as we usually cut newer companies a lot of slack when it comes to net income generation, as it was founded in 1989 and yet it still struggles to generate positive net income.
This could be a sign that the company isn’t being very efficient with its resources, which, if accurate, is another bad sign.
Stericycle’s stock fundamentals
A bright spot in the Stericycle story revolves around its trailing twelve month (TTM) net profit margin.
Namely, although it isn’t all that high to begin with, it trumps the industry’s average at 3.01% to the industry’s average of -7.25%, according to TD Ameritrade’s platform.
While Stericycle’s TTM net profit margin is better than that of the industry (on average), to us it is still quite low for a company that has been around the disposable waste block for a while now.
This is yet another reason we think the company isn’t being as efficient with its resources as it could or should be.
Another hint that this is the case is found with the company’s TTM returns on both assets and investment(s), as, also according to TD Ameritrade’s platform, both its TTM returns on assets and investment(s) trail the industry’s average by around 7% and 10%, respectively.
Should you buy Stericycle stock?
We tip our hats to this company for all that it does in keeping people safe from unsavory, dangerous substances and other materials.
At that same token, we aren’t the biggest overall fans of the company’s core financials and relevant metrics, as this company seems alarmingly inefficient with its capital and other resources given its inordinately low TTM returns on assets and investment(s) and its weakening annual revenue figures, not to mention something that is largely out of its control, its outlandish valuation (according to its present price-to-earnings ratio), this company isn’t making our shortlist anytime soon.
We give the company’s stock a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.