Thinking of Selling HZNP After Today's Rally? Consider This First.

Shares of Horizon Therapeutics Public (HZNP) jumped 1.2 % during Friday's afternoon session, bringing their 52 week performance to 20.0%. The stock seems to be fairly valued 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 strong growth indicators and positive market sentiment.

Horizon Therapeutics Public Limited Company, a biotechnology company, focuses on the discovery, development, and commercialization of medicines that address critical needs for people impacted by rare, autoimmune, and severe inflammatory diseases. The large-cap Health Care company is based in Dublin, Ireland and has 2,145 full time employees.

HZNP Has a Higher P/E Ratio Than the Sector Average

Compared to the Health Care sector's average of 24.45, Horizon Therapeutics Public has a trailing twelve month price to earnings (P/E) ratio of 64.9 and an expected P/E ratio of 15.0. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $1.58 or forward earnings per share of $6.86.

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 Horizon Therapeutics Public's P/E ratio is higher than its sector average of 24.45, we can deduce that the market is overvaluing the company's earnings.

Horizon Therapeutics Public Is Overvalued in Terms of Expected Growth

Horizon Therapeutics Public's PEG ratio is 3.84. This metric represents the company's earnings per share divided by its expected growth ratio, and is a useful complement to the price to earnings analysis, because it factors in growth to the valuation. A PEG ratio around or below 1 implies that the market in fairly valuing the company in terms of its growth estimates. But when the PEG ratio is higher, as in Horizon Therapeutics Public's case, it tells us the company is overvalued.

HZNP Has an Average P/B Ratio

Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.

Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For Horizon Therapeutics Public, the P/B value is 4.6 while the average for the Health Care sector is 4.16.

HZNP Is Generating Cash

Horizon Therapeutics Public has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of 31.1%, compared to 63.1% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of 29.0% and a coefficient of variability of 54.2%:

Horizon Therapeutics Public'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 Horizon Therapeutics Public'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.

Horizon Therapeutics Public's Gross Margins

Horizon Therapeutics Public's Operating Margins

Horizon Therapeutics Public's cost of revenue is growing at a rate of 26.3% in contrast to 25.4% for operating expenses. Sales revenues, on the other hand, have experienced a 29.3% growth rate. As a result, the average gross margins growth is 0.9 and the average operating margins growth rate is 17.4, with coefficients of variability of 2.2% and 28.7% respectively.

Horizon Therapeutics Public Benefits From Positive Market Signals

The market sentiment regarding Horizon Therapeutics Public is overwhelmingly positive. The stock has an average rating of hold and target prices ranging from $116.5 to $116.5. HZNP is trading -11.97% away from its target price of $116.5. 3.2% of the company's shares are tied to short positions, and 99.0% of the shares are held by institutional investors.