It has been an incredible 12 months for shareholders of the ASX 200 stock in this article.
During this time, its shares have rallied an astonishing 134% higher.
As a comparison, the ASX 200 index has risen by approximately 13% over the same period.
Unfortunately, one leading broker is calling time on this outperformance and has slapped a sell rating on its shares this morning.
Which ASX 200 stock?
The stock in question is pharmacy chain operator Sigma Healthcare Ltd (ASX: SIG), which merged with Chemist Warehouse at the start of the year.
According to a note out of Bell Potter, its analysts believe the ASX 200 stock is a great business, but overvalued following its strong gains.
Commenting on Sigma Healthcare, the broker said:
The back door listing of Chemist Warehouse Group (CWG) via the merger with Sigma Healthcare has proved to be one of the most successful M&A transactions in recent times, having crystalised considerable wealth to the founders and a small army of franchisee shareholders. The outcome is particularly remarkable considering Community Pharmacy in Australia is highly regulated. In traditional pharmacy, franchisees have virtually no pricing power and rely heavily on income from government funded mechanisms in the dispensing of PBS medicines.
Despite these challenges, the banner group of Chemist Warehouse has become a go to destination for value seeking retail shoppers for discretionary personnel care items in addition to pharmaceutical medicines. CWG runs a tight franchisee model starting with the head lease of each retail outlet through to every aspect of store layout, product range, instore advertising and promotion. Accordingly, the Chemist Warehouse format has become the most successful Community Pharmacy banner group in the country.
Time to sell
Despite all the positives, the broker feels that this ASX 200 stock is overvalued and could underperform the market in the near term.
Accordingly, it has initiated coverage on Sigma Healthcare's shares with a sell rating and $2.00 price target.
Based on its current share price of $2.86, this implies potential downside of 30% for investors over the next 12 months.
Commenting on its sell recommendation, the broker said:
Despite the great outcome for CWG shareholders, the current market capitalisation is not supported by expectations for earnings growth or dividend yield, accordingly we commence coverage with a Sell recommendation price target of $2.00. Short term catalysts include the imminent expiry of the first escrow date for co-founders to commence a partial sell down. 2H25 earnings are also expected to be weaker (relative to 1H25) as is the normal seasonal trend. We expect a convergence on consensus earnings for FY26 following FY25 reporting in August.
