Down 21%, is the Smith & Nephew share price too cheap to ignore?

The Smith & Nephew share price is trading at its cheapest for almost a year. Is now the time for value investors to think about piling in, asks Royston Wild?

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It’s been a grim couple of months for Smith & Nephew (LSE:SN.) and its share price. After hitting 14-month peaks in September, the FTSE 100 business has shed a whopping 21% of its value.

Following a chilly trading update Thursday (31 October), it’s dropped back below £10 a share. And it’s still slipping in end-of-week trade.

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As a long-term investor, I’m considering whether this represents a prime dip-buying opportunity. Are Smith & Nephew shares now a brilliant bargain?

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Forecasts downgraded

Smith & Nephew manufactures a range of healthcare products. It’s a market leader in medical devices, along with artificial limbs and hips and products to treat wounds. And it spooked investors on Halloween by slashing its full-year forecasts.

Revenues growth in 2024’s now tipped at 4.5%, a sharp downgrade from the previously predicted 5-6%.

Trading profit margins are now forecast at “up to” 18% versus 17.5% in 2023. But this is lower than a reading of “at least” 18% previously expected. And for 2025, margins are predicted at 19-20%, down from a formerly predicted 20%.

Smith & Nephew’s suffering from weak conditions in China, and particularly at its Orthopaedics division. Group sales rose 4% in the third quarter to $1.4bn. But stripping out Chinese revenues, turnover was up 5.9% year on year.

Fragile China

China’s an enormous growth market for the company. However, destocking and rising local competition seems to be impacting Orthopaedics sales. And regarding the latter, Panmure Liberum analysts say that “it isn’t clear whether Smith & Nephew will be able to recover these revenues“.

The FTSE firm’s suffering too as the Chinese economy struggles. It had hoped the country’s centralised Volume-Based Procurement (VBP) policy would boost the number of medical procedures being performed. But the economic downturn means this hasn’t happened, hitting Sports Medicine sales as well.

Looking good long term

The issues Smith & Nephew face could take time to ease. So Thursday’s third-quarter update might not be the last trading statement to scare the market.

Having said that, I think now could be a good time to consider investing. Over the long term, demand for healthcare products is tipped to boom, driven by steady population growth and rising investment in emerging markets.

I’m certainly expecting sales to rebound sharply in China when the economic landscape improves.

It’s also encouraging to see the progress the company’s making in the US, and especially in the area of hip and knee implants.

Smith & Nephew’s diversified range of products positions it to capitalise on this structural opportunity. Its long history of innovation and creating market-leading products bodes well, as does its strong position in the fast-growing field of robotics.

For 2025, Smith & Nephew shares trade on a forward price-to-earnings (P/E) ratio of just 11.3 times. It also deals on a sub-1 price-to-earnings growth (PEG) ratio of 0.6, another figure that underlines its cheapness.

While it isn’t without risks, I think Smith & Nephew’s a great share for patient investors to consider.

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When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Phoenix Group Holdings Plc made the list?

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Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Smith & Nephew Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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