Shareholders of Bio-Techne would probably like to forget the past six months even happened. The stock dropped 21% and now trades at $57.45. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Bio-Techne, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Bio-Techne Not Exciting?
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons why there are better opportunities than TECH and a stock we'd rather own.
1. Slow Organic Growth Suggests Waning Demand In Core Business
We can better understand Research Tools & Consumables companies by analyzing their organic revenue. This metric gives visibility into Bio-Techne’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, Bio-Techne’s organic revenue averaged 3.4% year-on-year growth. This performance slightly lagged the sector and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations. 
2. 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 $1.21 billion in revenue over the past 12 months, Bio-Techne 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.
3. 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, Bio-Techne’s margin dropped by 8.2 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Bio-Techne’s free cash flow margin for the trailing 12 months was 18.3%.
Final Judgment
Bio-Techne isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 27.8× forward P/E (or $57.45 per share). At this valuation, there’s a lot of good news priced in - you can find more timely opportunities elsewhere. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
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