Value
6.5/10data confidence 100%| Component | Sub-score |
|---|---|
| P/E | 3.9 |
| P/S | 7.3 |
| EV/EBITDA | 4.3 |
| Fwd P/E | 7.1 |
| PEG | 10.0 |
| Analyst target | 5.0 |
- ▸Forward P/E: 17.6x
- ▸PEG: 0.12
SHC · Why this verdict
Why Sotera Health (SHC) is rated SELL
Updated
Model-generated analysis — not investment advice. Not a registered investment advisor. Past performance does not guarantee future results.
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VerdictSELL
Overall score5.9/10
ConfidenceMEDIUM
MacroNEUTRAL
TrendMatrix Research · core thesis
Engine thesis — one sentence
Sotera Health is a high-quality healthcare sterilization business with 123% free cash flow conversion, a Piotroski F-Score of 8/9, and three consecutive earnings beats, but single-supplier dependency on one ethylene oxide source and high leverage at 3.6x debt-to-equity constrain near-term entry.
Falsifiable statement — pillar-level invalidators below. Engine-derived; not personalized advice.
Thesis pillars
| Pillar | Expectation | Trend |
|---|---|---|
Ethylene oxide sterilization capacity relies on a single supplier — a high-severity concentration risk — meaning any supply disruption, regulatory action against that supplier, or pricing negotiation failure could halt the company's core operations. Bear case | The company discloses a second ethylene oxide supply agreement within 12 months, reducing concentration risk below single-source dependency. | ↑Improving |
| CounterEO supply relationships in industrial sterilization are typically long-established with high switching costs on both sides; the existing supplier has equally strong incentives to maintain the relationship. | ||
Free cash flow conversion at 123% of net income and a Piotroski F-Score of 8 out of 9 demonstrate that the business consistently generates more cash than its accounting earnings suggest, reflecting high-quality recurring revenue from healthcare sterilization contracts. Quality breakdown | Free cash flow conversion remains above 100% of net income over the next 12 months as long-term customer contracts continue to generate predictable cash. | ↓Deteriorating |
| CounterThe Piotroski score partially reflects low capital expenditure relative to depreciation; if the company needs to reinvest significantly in its sterilization facilities, FCF conversion could normalize downward. | ||
The company beat earnings estimates in 3 of its last 4 quarters with an average positive surprise of 11.4%, with beats of 19.1%, 7.1%, and 15.9% in the three most recent quarters, demonstrating consistent operational outperformance. Catalyst breakdown | Earnings beats continue in at least 2 of the next 3 quarters, maintaining the track record of outperformance. | ↓Deteriorating |
| CounterThe most recent quarter was only an inline result rather than a beat; if this signals a deceleration in outperformance, the beat streak may be peaking. | ||
Debt-to-equity of 3.6 imposes a maximum leverage penalty on quality ratings and implies that a meaningful portion of equity returns are being generated through financial leverage rather than operational strength — a risk that could accelerate in a higher-rate environment. Risk breakdown | Debt-to-equity falls below 2.5 over the next 12 months through free cash flow deployment toward debt reduction. | ↑Improving |
| CounterThe analyst price target implies 24% upside and the company generates 123% FCF relative to net income, suggesting the free cash flow capacity to meaningfully reduce debt; the high leverage may be intentional and manageable. | ||
Ethylene oxide sterilization capacity relies on a single supplier — a high-severity concentration risk — meaning any supply disruption, regulatory action against that supplier, or pricing negotiation failure could halt the company's core operations.
↑ImprovingBear case
- Expectation
- The company discloses a second ethylene oxide supply agreement within 12 months, reducing concentration risk below single-source dependency.
CounterEO supply relationships in industrial sterilization are typically long-established with high switching costs on both sides; the existing supplier has equally strong incentives to maintain the relationship.
Free cash flow conversion at 123% of net income and a Piotroski F-Score of 8 out of 9 demonstrate that the business consistently generates more cash than its accounting earnings suggest, reflecting high-quality recurring revenue from healthcare sterilization contracts.
↓DeterioratingQuality breakdown
- Expectation
- Free cash flow conversion remains above 100% of net income over the next 12 months as long-term customer contracts continue to generate predictable cash.
CounterThe Piotroski score partially reflects low capital expenditure relative to depreciation; if the company needs to reinvest significantly in its sterilization facilities, FCF conversion could normalize downward.
The company beat earnings estimates in 3 of its last 4 quarters with an average positive surprise of 11.4%, with beats of 19.1%, 7.1%, and 15.9% in the three most recent quarters, demonstrating consistent operational outperformance.
↓DeterioratingCatalyst breakdown
- Expectation
- Earnings beats continue in at least 2 of the next 3 quarters, maintaining the track record of outperformance.
CounterThe most recent quarter was only an inline result rather than a beat; if this signals a deceleration in outperformance, the beat streak may be peaking.
Debt-to-equity of 3.6 imposes a maximum leverage penalty on quality ratings and implies that a meaningful portion of equity returns are being generated through financial leverage rather than operational strength — a risk that could accelerate in a higher-rate environment.
↑ImprovingRisk breakdown
- Expectation
- Debt-to-equity falls below 2.5 over the next 12 months through free cash flow deployment toward debt reduction.
CounterThe analyst price target implies 24% upside and the company generates 123% FCF relative to net income, suggesting the free cash flow capacity to meaningfully reduce debt; the high leverage may be intentional and manageable.
Per-dimension breakdown
Quality
7.8/10data confidence 100%| Component | Sub-score |
|---|---|
| ROE | 9.3 |
| ROA | 5.7 |
| Gross margin | 7.0 |
| Op margin | 10.0 |
| Net margin | 6.7 |
| Current ratio | 9.4 |
| FCF quality | 6.7 |
| Moat | 6.9 |
| Piotroski F | 8.9 |
- ▸Excellent ROE: 28%
- ▸Strong Piotroski F-Score: 8/9
- ▸High-quality business
Growth
4.8/10data confidence 33%| Component | Sub-score |
|---|---|
| Rev growth | 4.8 |
Momentum
6.2/10data confidence 100%| Component | Sub-score |
|---|---|
| RSI | 4.2 |
| MACD | 7.8 |
| OBV | 10.0 |
| MA position | 9.0 |
| Volume | 0.1 |
- ▸Overbought (RSI 76)
- ▸Volume accumulation (rising OBV)
- ▸Above 200-day MA
Sentiment
6.6/10data confidence 100%| Component | Sub-score |
|---|---|
| Analyst rating | 6.9 |
| Price target | 7.7 |
| erm sentiment | 5.0 |
- ▸Light analyst coverage (9.0) — signal dampened
- ▸Analyst upside: 20%
Insider
5.4/10data confidence 75%| Component | Sub-score |
|---|---|
| materiality | 5.0 |
| holder change | 4.2 |
| notable moves | 7.0 |
- ▸No net insider activity — $0 (0.000% of mkt cap)
Peer rank
4.0/10data confidence 80%| Component | Sub-score |
|---|---|
| value rank | 5.3 |
| quality rank | 7.2 |
| growth rank | 3.2 |
- ▸Superior ROE vs peers
Technical
4.7/10data confidence 100%| Component | Sub-score |
|---|---|
| bollinger | 2.1 |
| support resistance | 3.0 |
| 52w position | 9.0 |
Risk (lower is worse)
5.1/10data confidence 100%| Component | Sub-score |
|---|---|
| short interest | 7.1 |
| days to cover | 5.7 |
| volatility | 5.4 |
| put call | 10.0 |
| implied vol | 0.0 |
| max pain risk | 7.0 |
| beta | 4.1 |
| debt equity | 1.6 |
- ▸High IV: 141%
- ▸Concentration risks: 1 HIGH, 1 MED (10-K Item 1A — sized via position_sizing, validated via buy_confidence)
Catalyst
6.8/10data confidence 100%| Component | Sub-score |
|---|---|
| erm | 5.0 |
| earnings history | 10.0 |
| earnings timing | 5.0 |
| surprise avg | 7.3 |
- ▸Strong earnings: 3B/0M
How the verdict was assembled
Engine trigger
Multiple concerning factors. Consider reducing position.
Engine technical detail
verdict_path:
L4:PATH_F_SELLPassed (6)
- MOMENTUM:6.2>=5.5
- INSIDER:OK
- NEWS_EVENTS:NONE_RECENT
- EARNINGS_PROXIMITY:78d clear
- SEMI_CYCLE_PEAK:CLEAR
- MATERIALS_CYCLE_PEAK:CLEAR
Failed (1)
- ASYMMETRY:0.4<1.5@spot
Warning (1)
- 8K_CSUITE_CHANGE:5.02 (officer departure/appointment)
Reward-to-Risk
0.43
Upside
+4.6%
Downside
10.9%
Sizing output
AVOID
Setup— — No clear chart pattern; technical signals are mixed
EdgeNo clear edge — No clear edge identified
SuitabilityAggressive — Beta 1.77>1.3
Investment implication
The F-path SELL output reflects an overall score of 4.4 below the 5.6 soft trigger — multiple weakening dimensions accumulated rather than a single hard-floor breach. The strongest dimension ( Quality at 7.8) was not enough to lift the adjusted overall above the threshold. Co-occurring failed gates ( ASYMMETRY:0.4<1.5@spot) reinforce the read. Current asymmetry R:R is 0.43 — supplementary context, not the trigger for this path.
The strongest dimensions are Quality at 7.8, Catalyst at 6.8, and Sentiment at 6.6; the weakest are Peer rank at 4.0, Technical at 4.7, and Growth at 4.8. The V9 engine flagged 1 failed gate with 1 warning, producing an asymmetric reward-to-risk of 0.43 and an engine sizing output of AVOID.
What would invalidate the thesis
Falsifying conditions — when triggered, the corresponding pillar's thesis is invalidated.
- P1High Quality Cash Conversion Business
Trip ifFree cash flow conversion falls below 80% of net income for 2 consecutive quarters, indicating the high-quality cash generation thesis is deteriorating.
- P2Eo Single Supplier Concentration
Trip ifCompany discloses a supply disruption from the single EO supplier lasting more than 30 days, affecting more than 20% of sterilization capacity.
- P3Strong Earnings Beat Streak
Trip ifEarnings surprise falls below 0% in at least 2 of the next 4 quarters, reversing the consistent beat pattern.
- P4High Leverage Pullback Entry Setup
Trip ifDebt-to-equity ratio rises above 4.0, more than 11% above current levels, indicating leverage is increasing rather than being reduced through cash generation.