FTSE 100 healthcare inventory Smith & Nephew (LSE: SN.) simply had a foul week. On Thursday (31 October), it fell a whopping 12.5%.

Is that this an ideal funding alternative for long-term buyers to think about? Let’s have a look.

Plenty of potential

I maintain Smith & Nephew shares in my very own portfolio. On condition that the corporate specialises in hip and knee substitute expertise, I’ve at all times thought that it has baggage of long-term funding potential because of the world’s ageing inhabitants.

It has been a really irritating inventory to personal although. The coronavirus pandemic actually harm the corporate as many surgical procedures have been postponed.

Extra not too long ago, the corporate has been impacted by the weak financial system in China in addition to the nation’s Quantity-Primarily based Procurement (VBP) programme – a authorities initiative aimed toward reducing the price of medical merchandise. This has slowed general progress because the group has vital publicity to the world’s second-largest financial system.

Decrease full-year steerage

This China publicity is one motive the shares simply plummeted.

On Thursday, the corporate posted an replace for Q3 with steerage for the complete yr. And sadly, it was slightly disappointing.

Because of the challenges in China, the corporate now expects full-year income progress of 4.5%. Beforehand, it was anticipating progress of 5%-6%.

Given the decrease degree of top-line progress, the corporate expects its revenue margins to swell at a slower charge than beforehand forecast. In August, Smith & Nephew suggested that buying and selling revenue margin for 2024 can be a minimum of 18%, nonetheless, it now expects progress of up to 50 foundation factors from final yr’s determine of 17.5%.

A shopping for alternative?

Is there a shopping for alternative after the share price crash?

Doubtlessly.

I don’t plan to purchase any extra shares myself because it’s already a decent-sized place in my portfolio.

But when I didn’t personal any of the shares, I is perhaps taking a better take a look at the inventory now.

Administration continues to consider that the corporate is able to producing substantial progress and profitability in the long term. “We remain convinced that our transformation to a higher growth company, with the ability to drive operating leverage through to the bottom line, is on the right course,” stated CEO Deepak Nath within the Q3 replace.

And the inventory trades at a comparatively enticing valuation right now. At present, the consensus earnings forecast for 2025 is $1.10 (it reviews in US {dollars}). Let’s say that the group truly generates $1 in earnings as an alternative subsequent yr. On this situation, the price-to-earnings (P/E) ratio is barely about 12.4 at right now’s share price, which is kind of low for a healthcare firm.

Add in the truth that there’s a 3% dividend yield on supply now, and there’s lots to love.

After all, China stays a key danger right here within the quick time period. For the corporate to do properly, it wants the financial system to choose up and quantity advantages from the VBP programme to return by way of.

Taking a long-term view, nonetheless, I proceed to consider this inventory has the potential to generate enticing, FTSE-beating returns.