Over the past six months, Pfizer’s shares (currently trading at $26.70) have posted a disappointing 10.2% loss, well below the S&P 500’s 3.8% gain. This might have investors contemplating their next move.

Is there a buying opportunity in Pfizer, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Even though the stock has become cheaper, we're swiping left on Pfizer for now. Here are three reasons why there are better opportunities than PFE and a stock we'd rather own.

Why Is Pfizer Not Exciting?

Founded in 1849, Pfizer (NYSE:PFE) is a global pharmaceutical company that develops and produces a wide range of medicines and vaccines for various medical conditions.

1. Core Business Falling Behind as Demand Declines

Investors interested in Branded Pharmaceuticals companies should track organic revenue in addition to reported revenue. This metric gives visibility into Pfizer’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Pfizer’s organic revenue averaged 15.6% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Pfizer might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

2. Free Cash Flow Margin Dropping

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Pfizer’s margin dropped by 10.2 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal higher capital intensity and investment needs. Pfizer’s free cash flow margin for the trailing 12 months was 15.5%.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Pfizer’s ROIC has decreased over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Pfizer isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 9.2× forward price-to-earnings (or $26.70 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now. We’d recommend looking at the Amazon and PayPal of Latin America.

Stocks We Would Buy Instead of Pfizer

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