Summary

DaVita, a leading provider of dialysis services, has been in a holding pattern since September 2024, posting a small loss of 4.3% while hovering around $147.02. Despite its long history and established presence in the market, DaVita's performance has raised concerns among investors, prompting a closer examination of its growth prospects.

Why Is DaVita Not Exciting?

Founded in 1994, DaVita Inc. (NYSE:DVA) offers dialysis services to patients with chronic kidney failure and end-stage renal disease, providing both in-center and at-home treatment options. However, despite its solid foundation, DaVita's long-term revenue growth has been disappointing, growing at a mere 2.4% compounded annual growth rate over the last five years.

This subpar performance raises questions about DaVita's ability to sustain itself in an increasingly competitive market. While a company's short-term results can be influenced by various factors, its long-term growth is a more telling indicator of its overall quality and resilience.

A closer look at DaVita's sales reveals that revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful Outpatient & Specialty Care company because there's a ceiling to what customers will pay. Over the last two years, DaVita failed to grow its treatments, which came in at 7.28 million in the latest quarter.

This underwhelming performance implies that there may be increasing competition or market saturation, forcing DaVita to lower prices or invest in product improvements to accelerate growth. Such factors can hinder near-term profitability and create uncertainty for investors.

Moreover, projected revenue growth by Wall Street analysts signals a company's potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite. Over the next 12 months, sell-side analysts expect DaVita's revenue to rise by 5%, close to its 5.1% annualized growth for the past two years.

However, this projection is underwhelming and implies that DaVita's newer products and services will not accelerate its top-line performance yet. With its shares trailing the market in recent months, the stock trades at 13× forward price-to-earnings (or $147.02 per share). While this valuation is fair, the upside isn't great compared to the potential downside.

A More Exciting Alternative

While DaVita isn't a terrible business, it's not one of our top picks either. With its shares trailing the market in recent months, we're pretty confident that there are more exciting stocks to buy at the moment. Let us point you toward one of Charlie Munger's all-time favorite businesses.

Story Continues

As we navigate the current market landscape, characterized by falling rates, stabilizing inflation, and the elections being in the rearview mirror, all signs point to the start of a new bull run. We're laser-focused on finding the best stocks for this upcoming cycle.

If you're looking to put yourself in the driver's seat and capitalize on this momentum, we invite you to explore our Top 5 Strong Momentum Stocks for this week. This curated list features high-quality stocks that have generated a market-beating return of 175% over the last five years.

Among these top performers is Sterling Infrastructure, which has delivered an impressive 1,096% five-year return, making it an attractive alternative to DaVita. With its solid track record and promising growth prospects, Sterling Infrastructure is definitely worth considering for your portfolio.

Conclusion

DaVita's underwhelming performance has raised concerns among investors, but there are more exciting stocks waiting in the wings. While DaVita isn't a terrible business, it's not one of our top picks either. With its shares trailing the market in recent months and projected revenue growth being underwhelming, we believe that there are better alternatives to consider.

If you're looking for high-quality stocks with strong momentum, look no further than our curated list of Top 5 Strong Momentum Stocks for this week. These businesses have a proven track record of delivering impressive returns and are poised to continue their growth in the coming months.

With falling rates, stabilizing inflation, and a new bull run on the horizon, now is the perfect time to explore these top performers and find your next big winner.