Surgery Partners has gotten torched over the last six months - since May 2025, its stock price has dropped 35.6% to $15.19 per share. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
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Why Is Surgery Partners Not Exciting?
Even with the cheaper entry price, we don't have much confidence in Surgery Partners. Here are three reasons we avoid SGRY and a stock we'd rather own.
1. Weak Sales Volumes Indicate Waning Demand
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful Outpatient & Specialty Care company because there’s a ceiling to what customers will pay.
Over the last two years, Surgery Partners’s units sold averaged 3.8% year-on-year growth. This performance slightly lagged the sector and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Surgery Partners has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.6%, subpar for a healthcare business.
3. High Debt Levels Increase Risk
Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.
Surgery Partners’s $3.64 billion of debt exceeds the $203.4 million of cash on its balance sheet. Furthermore, its 6× net-debt-to-EBITDA ratio (based on its EBITDA of $533.1 million over the last 12 months) shows the company is overleveraged.
At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Surgery Partners could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.
We hope Surgery Partners can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.
Final Judgment
Surgery Partners isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 22.7× forward P/E (or $15.19 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. We’d recommend looking at one of our all-time favorite software stocks.
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