Over the past six months, Progyny’s shares (currently trading at $20.90) have posted a disappointing 9.1% loss, well below the S&P 500’s 18.4% gain. This might have investors contemplating their next move.

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

Why Is Progyny Not Exciting?

Despite the more favorable entry price, we're swiping left on Progyny for now. Here are three reasons we avoid PGNY and a stock we'd rather own.

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 $1.24 billion in revenue over the past 12 months, Progyny 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. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal 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 Progyny’s revenue to rise by 4.8%, a deceleration versus its 35.5% annualized growth for the past five years. This projection doesn't excite us and suggests its products and services will face some demand challenges.

3. Previous Growth Initiatives Haven’t Paid Off Yet

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Progyny historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.6%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.

Final Judgment

Progyny isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 12.6× forward P/E (or $20.90 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at the Amazon and PayPal of Latin America.

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