CAI

We rate Caris Life Sciences, Inc. (CAI) as a Reduce with a composite score of 47.5/100 at a current price of $18.20. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in quality (67th percentile) and stability (53th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (26th percentile) and momentum (27th percentile) tempers our overall conviction. We assign a Narrow Moat rating (53/100), Medium uncertainty, and Standard capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs; sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Caris Life Sciences, Inc. holds a top-quartile position (#0 of 50) within the Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 47.5/100 places it at rank #2413 in our full 7,333-stock universe. At $9.0B in market capitalization, Caris Life Sciences, Inc. is a mid-cap player in the Services space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 113%, though momentum at the 27th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 68% (+8.4pp vs sector) narrow to operating margins of 15% (+11.5pp vs sector) and net margins of 11.2%, yielding a gross-to-net conversion rate of 16%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $18.20, Caris Life Sciences, Inc. is trading near fair value based on current fundamentals. Our value factor score of 45/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 196.0x (a 726% premium to the sector median of 23.7x), EV/EBITDA of 45.1x (at a premium), P/B of 11.5x, P/S of 6.3x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis partially supports given strong quality metrics.

We assign a Medium uncertainty rating to Caris Life Sciences, Inc.. The stock presents a balanced risk profile: elevated valuation multiple (P/E 196.0x) that leaves limited margin for error. While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: elevated valuation multiple (P/E 196.0x) that leaves limited margin for error. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 53th percentile and quality factor at the 67th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 68% provide a buffer against cost pressures. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate Caris Life Sciences, Inc.'s capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 20.3%, and the balance sheet is managed within acceptable parameters (D/E: 79%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; Caris Life Sciences, Inc. falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. Absent a dividend, the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, Caris Life Sciences, Inc. receives a Reduce rating with a composite score of 47.5/100 (rank #2413 of 7,333). Our quantitative framework assigns a Narrow Moat (53/100, trend: stable), Medium uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 43/100.

Our analysis does not support a constructive view on Caris Life Sciences, Inc. at this time. The combination of the current quantitative profile, medium uncertainty, and standard capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.