This Stock Is Up Over 52,700% Since Founding. Should Investors Buy After Its 36% Decline?

Danaher (NYSE: DHR) has been wildly successful for a long time. The stock has returned over 52,700% since its 1969 founding as DMG.

Unfortunately, investors may question, or even forget, the company's rich history, given the stock's poor performance following the COVID-19 pandemic. Shares are down over the past five years, which can be hard to stomach while the broader market rides the artificial intelligence (AI) boom to new heights.

Even now, Danaher stock is 36% below its all-time high. Should investors buy the legendary healthcare stock now in anticipation of a comeback?

Image source: Getty Images.

Why the stock has struggled

Danaher is one of the world's leading life sciences companies. Its 15 businesses across biotechnology, diagnostics, and life sciences operate independently, but all fall under the Danaher Business System. That has made Danaher very successful over the years, but the past five have included a couple of challenges.

First, Danaher's business soared during COVID-19 as testing and vaccine manufacturing surged. The company felt a hangover effect once business normalized as the pandemic passed. Additionally, sales from China, which accounted for approximately 11% of Danaher's revenue last year, have been soft over the past several years.

You can see the massive drop-off in Danaher's sales.

Data by YCharts.

Although Danaher has been successful for a very long time, years of declining revenue have turned sentiment against the stock.

Looking at Danaher's latest blockbuster acquisition

It appears that the worst is over for Danaher. Revenue bottomed and began growing midway through 2024.

Then, in February, Danaher announced it was acquiring Masimo for $9.9 billion. Masimo is a leader in pulse oximetry technology, primarily used in those devices you can put on your finger to measure the oxygen levels in your blood. It complements Danaher's other diagnostics businesses.

Financially, Masimo brings just over $1.5 billion in annual sales to Danaher's $24.5 billion, and management expects Masimo to add $530 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2027. Importantly, it's a cash deal, so there's no dilution from new shares used to fund the acquisition. The incoming revenue and profits add to Danaher's per-share financials.

Now is a good time to buy

Before the market turned sour on Danaher, the stock typically traded at a pretty lofty valuation. Danaher's price-to-earnings ratio averaged about 32 over the past decade. But today, shares trade at just over 22 times this year's estimated earnings.

Meanwhile, Danaher started its new fiscal year on a strong note, reporting first-quarter non-GAAP (generally accepted accounting principles) earnings that grew 9.5% year over year and beat Wall Street's expectations. Management anticipates more than $5 billion in free cash flow this year and is willing to pursue additional acquisitions if opportunities arise.

Analysts see Danaher growing earnings by an average of 8% to 9% annually over the next three to five years. That could change as management makes more moves. But for now, Danaher stands out as a proven winner that investors may want to buy and hold, given its valuation sits so far below its long-term norms.

Justin Pope has positions in Danaher. The Motley Fool has positions in and recommends Danaher and Masimo. The Motley Fool has a disclosure policy.