Shares of Amgen (AMGN) rose 0.1 % during today's afternoon session, bringing their 52 week performance to 36.7%. The stock seems to be overvalued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's average growth indicators and mixed market sentiment.
Amgen Inc. discovers, develops, manufactures, and delivers human therapeutics worldwide. The large-cap Healthcare company is based in Thousand Oaks, United States and has 24,200 full time employees.
AMGN Has a Higher P/E Ratio Than the Sector Average
Compared to the Healthcare sector's average of 13.21, Amgen has a trailing twelve month price to earnings (P/E) ratio of 22.9 and an expected P/E ratio of 15.4. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $12.46 or forward earnings per share of $18.59.
Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Amgen's P/E ratio is higher than its sector average of 13.21, we can deduce that the market is overvaluing the company's earnings.
AMGN Has an Alarming P/B Ratio
The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.
Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since Amgen's P/B ratio of 41.7 is higher than its sector average of 4.07, such a margin of safety does not exist for the stock.
Investors Stand to Gain from AMGN's Cash Flows
Amgen has strong cash flows. With a coefficient of variability of 11.3% and an average growth rate of -6.2%, the company is effectively turning its revenue into cash. We calculate Amgen's free cash flows by subtracting capital expenditures (long term investments in the business) from its total cash flows from operations. The table below shows us that capital expenditures are evolving at a 9.0% rate, versus -5.3% for operating expenses:
| Date Reported | Cash Flow from Operations ($) | Capital expenditures ($) | Free Cash Flow ($) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 9,261,000,000.0 | -880,000,000.0 | 8,381,000,000.0 | -15.25 |
| 2020-12-31 | 10,497,000,000.0 | -608,000,000.0 | 9,889,000,000.0 | 15.9 |
| 2019-12-31 | 9,150,000,000.0 | -618,000,000.0 | 8,532,000,000.0 | -19.19 |
| 2018-12-31 | 11,296,000,000.0 | -738,000,000.0 | 10,558,000,000.0 | n/a |
Amgen's Margins Are Strong
If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Amgen's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.
Amgen's Gross Margins
| Date Reported | Revenue ($) | Cost of Revenue ($) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 25,979,000,000.0 | 6,454,000,000.0 | 75.16 | -0.81 |
| 2020-12-31 | 25,424,000,000.0 | 6,159,000,000.0 | 75.77 | -6.86 |
| 2019-12-31 | 23,362,000,000.0 | 4,356,000,000.0 | 81.35 | -1.67 |
| 2018-12-31 | 23,747,000,000.0 | 4,101,000,000.0 | 82.73 | n/a |
Amgen's Operating Margins
| Date Reported | Total Revenue ($) | Operating Expenses ($) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 25,979,000,000.0 | 16,641,000,000.0 | 35.94 | -2.04 |
| 2020-12-31 | 25,424,000,000.0 | 16,096,000,000.0 | 36.69 | -11.99 |
| 2019-12-31 | 23,362,000,000.0 | 13,622,000,000.0 | 41.69 | -6.17 |
| 2018-12-31 | 23,747,000,000.0 | 13,196,000,000.0 | 44.43 | n/a |
Amgen's cost of revenue is growing at a rate of 27.2% in contrast to 8.3% for operating expenses. Sales revenues, on the other hand, have experienced a 3.1% growth rate. As a result, the average gross margins growth is -3.1 and the average operating margins growth rate is -6.7, with coefficients of variability of 4.9% and 10.2% respectively.
We See Mixed Market Signals Regarding AMGN
Amgen has an average rating of hold and target prices ranging from $325 to $180. At its current price of $285.82, the company is trading 8.84% away from its target price of $262.6. 2.0% of the company's shares are linked to short positions, and 79.0% of the shares are owned by institutional investors.
| Holder | Shares | Date Reported | Percentage | Value |
|---|---|---|---|---|
| Vanguard Group, Inc. (The) | 47,459,511 | 2022-09-29 | 8.89% | $13,565,115,310.00 |
| Blackrock Inc. | 46,870,708 | 2022-09-29 | 8.78% | $13,396,820,686.00 |
| State Street Corporation | 29,073,061 | 2022-09-29 | 5.45% | $8,309,808,015.00 |
| Primecap Management Company | 15,564,870 | 2022-09-29 | 2.92% | $4,448,829,157.00 |
| Capital Research Global Investors | 12,605,265 | 2022-09-29 | 2.36% | $3,602,900,022.00 |
| Morgan Stanley | 11,777,700 | 2022-09-29 | 2.21% | $3,366,361,246.00 |
| Geode Capital Management, LLC | 11,200,793 | 2022-09-29 | 2.10% | $3,201,466,795.00 |
| Charles Schwab Investment Management, Inc. | 9,236,530 | 2022-09-29 | 1.73% | $2,640,031,300.00 |
| Goldman Sachs Group Inc | 8,936,989 | 2022-09-29 | 1.67% | $2,554,414,990.00 |
| FMR, LLC | 8,701,109 | 2022-09-29 | 1.63% | $2,486,994,586.00 |
