Even during a down period for the markets, Privia Health has gone against the grain, climbing to $22.91. Its shares have yielded a 29.3% return over the last six months, beating the S&P 500 by 30.9%. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now the time to buy Privia Health, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Despite the momentum, we're swiping left on Privia Health for now. Here are two reasons why there are better opportunities than PRVA and a stock we'd rather own.

Why Is Privia Health Not Exciting?

Operating in 13 states and the District of Columbia with over 4,300 providers serving more than 4.8 million patients, Privia Health (NASDAQ:PRVA) is a technology-driven company that helps physicians optimize their practices, improve patient experiences, and transition to value-based care models.

1. Fewer Distribution Channels Limit its Ceiling

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $1.74 billion in revenue over the past 12 months, Privia Health is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

2. Previous Growth Initiatives Have Lost Money

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Privia Health’s five-year average ROIC was negative 5.5%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

Final Judgment

Privia Health isn’t a terrible business, but it isn’t one of our picks. With its shares outperforming the market lately, the stock trades at 25.5× forward price-to-earnings (or $22.91 per share). This multiple tells us a lot of good news is priced in - we think there are better investment opportunities out there. Let us point you toward one of our all-time favorite software stocks.

Stocks We Would Buy Instead of Privia Health

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