For experienced healthcare investors, medtronic (MDT 0.72%) No introduction necessary. The medical device specialist has been around for decades, successfully navigating one of the most regulated industries while delivering generally solid financial results and stock market performance. But it hasn't been all smooth sailing for Medtronic since 2019.
The company is facing serious problems, which is why the stock price performance is not very good. Let's take a look at how much a $10,000 investment in Medtronic five years ago is worth today, and whether the company can perform even better over the next five years and beyond.
A series of challenges
Medtronic's revenue depends in part on the volume of medical procedures performed using its devices. Your doctor will order more if needed. If the global pandemic sends surgery volumes in the wrong direction for Medtronic's objectives, the company's sales will take a hit.
Although this has been the case for most of 2020 and 2021, Medtronic has maintained some level of revenue thanks to sales of ventilators, which are critical to helping many patients survive COVID-19. did it.
MDT Revenue (Annual) Data by YCharts
The aftermath of the first year of the pandemic was an economy marked by inflation, supply chain issues, and labor market problems. As a result, Medtronic has had to deal with increased expenses.
However, it's worth noting that even before the coronavirus outbreak and its aftermath, Medtronic was dealing with relatively weak revenue growth. So while the pandemic has made things worse, some of the problems were still alive and well five years ago, before anyone had heard of COVID-19.
Medtronic stock has a compound annual growth rate (CAGR) of 0.85% over the past five years, and a $10,000 investment would have a closing balance of $10,430.of S&P500With a CAGR of nearly 15% over the past five years, your initial investment of $10,000 becomes $19,880. It would be no exaggeration to say that stock prices are underperforming.
MDT Total Return Level Data by YCharts
Be careful about your investment style
Can Medtronic turn things around? Here's a solid argument in its favor. The company is one of the world's largest medical device companies, with extensive operations in more than 150 countries. We also have dozens of products and established brands trusted by doctors. Therefore, the company has proven over the years that its devices are effective.
All of this is important because the world's aging population will lead to increased medical needs and increased demand for exactly the types of products that Medtronic makes.
But does that just mean the company is likely to be around for the long term and deliver better returns?
That depends, in part, on its ability to generate stronger revenue and profit growth. Management has been working on this project for some time and plans to double down on high-growth areas while spending less R&D money on other projects. Medtronic has decided to separate its Patient Monitoring and Respiratory Interventions divisions in 2022, and this transaction is currently underway.
The company is also focusing on diabetes treatment, which is in high demand. The disease currently affects more than 500 million adults worldwide, most of whom live in low- or middle-income countries.
There are important devices that can help diabetics cope with this chronic disease, but they are primarily available in developed countries. Medtronic's extensive global presence allows it to tap into diabetes markets that are underserved in other parts of the world.
In the third quarter of fiscal 2024, which ended Jan. 26, Medtronic's diabetes treatment revenue increased 12.3% to $640 million. This was also helped by the launch of the company's innovative insulin pump, the MiniMed 780G, in the US last year. , total revenue increased by just 4.7% to $8.1 billion.
Beyond diabetes treatment, Medtronic is also focused on the promising robot-assisted surgery market, another industry with high growth potential.
Finally, it's important to highlight dividend performance. The company has increased its dividend for his 46th consecutive year and is nearing Dividend King status. The S&P 500's dividend yield is currently over 3.27%, and the S&P 500's dividend yield is 1.47%.
Even with recent issues, Medtronic's dividend shouldn't be a problem. This stock is a great stock for income seekers, patient investors looking for a recovery, and investors looking to the next decade and beyond. But for investors looking for a company aiming for explosive growth, Medtronic probably isn't a good choice.
