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Stryker's Stock Looks Pricey

Stocks in this article: SYK JNJ MDT

NEW YORK ( TheStreet) -- Assessing whether a stock is a "value play" or a "value trap" has become a popular hobby for financial writers.

Although some companies may deserve bullish considerations on the basis on their own performances, some have to be assessed on a relative basis. That is to say, if company X is doing this, then company Y should be doing that.

Though this form of appraisal is not an exact science, it's nonetheless where Stryker (SYK) is today -- fairly or unfairly.

Although Stryker undoubtedly has a strong position in the orthopedic and medical technology market, where it competes with (among others) Johnson & Johnson (JNJ) and Medtronic (MDT), Stryker's valuation has outpaced its performance. It's up 26% year to date. And on the heels of soft first-quarter numbers, it's time for the stock to take a pause.

Unassuming First Quarter

Prior to the company's first-quarter results, shares had already gained 20% on the year. Stryker needed to deliver (at least) in-line results to push the stock higher. Unfortunately, the overall performance fell a bit short. Revenue increased 1.3% to $2.19 billion, missing the Street's estimates by a slim margin.

There was also very little excitement in Stryker's segment performance as sales in the reconstructive device business grew just 1%, even though it was closer to 5% on an organic basis. Likewise, the surgical-products business continues to be sluggish as revenue was nearly flat. The company was able to offset this with a better-than-expected showing in its neurotechnology segment.

The company also posted decent gains in the spine business, which grew revenue 4% year over year. It's a solid performance. I do wonder, though, how long Stryker can rely solely on the strength of the spine and the neurotech businesses. Elsewhere, reconstructive devices were unimpressive. But Johnson & Johnson's performance in that business didn't overwhelm, either.

Although I'm willing to look the other way here and excuse the weakness in the reconstructive devices as a general market event, it still looks as if Stryker is losing share in that area to Johnson & Johnson. Profitability wasn't any better as Stryker posted a 13% decline in net income due to (among other things) a recall of the company's hip implants.

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