Owning Alere Inc (ALR) May Not Be Healthy for Your Portfolio

Financial Outlook

The last fiscal year, ending March 31, Alere Inc (NYSE:ALR) grossed $2.886 billion in revenue but ended up losing $1.09 in earnings per share. Its revenue growth from the prior year has been lethargic, to say the least, and that also can be said about its operating income.

Alere has consistently lost money over the years while pulling in decent revenue numbers. It is understood that this business requires a tremendous amount of research and development, and Alere Inc (NYSE:ALR)’s debt load reflects the company’s growing need for future financing. As of fiscal year, ending in March, it holds over $3.7 billion in long-term debt and only $1.5 billion in common equity.

Serious point to consider

Alere is competing in a market that has many cash-rich companies entering into. The migration from traditional biometric monitoring to remote, real-time monitoring is one that does not require a swift change in focus for the likes of Medtronic and HomMED. Where these companies have multi-billion dollar research and development teams and budgets, Alere may run into significant headwinds if they continue to focus primarily on the remote monitoring market. Additionally, should Alere Inc (NYSE:ALR) attempt to diversify its services, additional, unaffordable cap-ex would be required.

Also a shake-up with the board of directors is happening as Coppersmith Capital Management — which owns 7% of the company — went public to run three candidates for four seats up for election. This comes amid charges from the shareholder that Alere has been mismanaged for years and needs better oversight. Alere’s counter-plan to Coppersmith’s is its own plan to increase revenues, which is falling on deaf ears.

Conclusion

It is surprising investors seem to continue to want to buy this stock. The shares have risen over 58% over the past year without the fundamentals increasing in lock step. With the future of this company going through a bit of a managerial struggle, it is best to either take profits here, or stay away altogether.

Should a standoff between Coppersmith Capital and Alere Inc (NYSE:ALR) result in a more aggressive and innovative board of directors, then the stock would warrant revisiting. Until then, my approach is to keep Alere out of the portfolio, but still on the radar.

The article Owning Alere May Not Be Healthy for Your Portfolio originally appeared on Fool.com and is written by Michael Mandala.

Michael Mandala has no position in any stocks mentioned. The Motley Fool owns shares of Medtronic. Michael is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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