Alkermes was one of the market's biggest losers today, losing 4.8% of its value and underperforming the S&P500 and Dow Industrial composite indices by 5.0% and 6.0% respectively. The mid-cap Health Care company ended the day at $31.09, but is still well above its 52 week low of $21.75 and is 14.16% below its average target price of $36.22. Over the last 12 months, Alkermes is up 9.6%, and has underperformed the S&P 500 by 6.0%. The stock has an average analyst rating of buy.
Alkermes does not release its trailing 12 month price to earnings (P/E) ratio because its earnings per share of $-0.98 are negative over the last year. Since P/E ratios are the stock's price divided by its earnings per share, a negative EPS number will result in a negative P/E ratio. This doesn't tell us much besides the fact that the company is not currently profitable.
Based on Alkermes's positive earnings guidance of $1.83, its stock has a forward P/E ratio of 17.0. Earnings refer to the net income of the company from its sales operations, and the P/E ratio tells us how much investors are willing to pay for each dollar of these earnings. In comparison, the Health Care sector has historically had an average P/E ratio of 24.45.
Another metric for valuing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present value of the company if it sold all its tangible assets and paid off all debts today. Alkermes's P/B ratio of 5.13 indicates that the market may be overvaluing the company when compared to the average P/B ratio of the Health Care sector, which is 4.16.
Alkermes is likely to attract many investors on the basis of its strong gross margins, which indicate that it either has an exceptional competitive advantage, or that its particular product or services involve very few direct costs:
Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
---|---|---|---|---|
2022-12-31 | 1,111,795 | 218,108 | 80.38 | 65.56 |
2021-12-31 | 1,173,751 | 603,913 | 48.55 | 8.25 |
2020-12-31 | 1,038,756 | 572,904 | 44.85 | 9.93 |
2019-12-31 | 1,170,947 | 693,218 | 40.8 | n/a |
- Average gross margins: 53.6 %
- Average gross margins growth rate: 18.5 %
- Coefficient of variability (lower numbers indicate more stability): 33.7 %
Don't let the above fool you. Such high gross margins need to be considered alongside the company's operating margins, which take into account overhead:
Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
---|---|---|---|---|
2022-12-31 | 1,111,795 | 1,035,952 | -12.8 | -412.0 |
2021-12-31 | 1,173,751 | 599,125 | -2.5 | 76.89 |
2020-12-31 | 1,038,756 | 578,279 | -10.82 | 21.82 |
2019-12-31 | 1,170,947 | 639,807 | -13.84 | n/a |
- Average operating margins: -10.0 %
- Average operating margins growth rate: 1.9 %
- Coefficient of variability (lower numbers indicate more stability): 51.5 %
We can see that in fact, Alkermes's significant overhead eliminates its profits from sales entirely. The company is not profitable.
To get a better idea of Alkermes's finances, we will now look at its cash flows. Often touted as a general yardstick for a company's financial health, cash flows represent the sum of inflows and outflows of cash from all sources, including capital expenditures:
Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
---|---|---|---|---|
2022-12-31 | 21,044 | -38,255 | -17,211 | -123.68 |
2021-12-31 | 101,715 | -29,020 | 72,695 | 78.95 |
2020-12-31 | 82,842 | -42,219 | 40,623 | 315.34 |
2019-12-31 | 72,077 | -90,942 | -18,865 | n/a |
- Average free cash flow: $-17211000.0
- Average free cash flow growth rate: 2.3 %
- Coefficient of variability (lower numbers indicating more stability): 233.4%
Free cash flow represents the money that Alkermes can use to either reinvest in the business or to reward its investors in the form of a dividend. Since the company's most recent cash flows are negative, it comes as no surprise that investors do not get a dividend.
In conclusion, Alkermes may be unattractive to investors with a low risk tolerance or a long term investment horizon. Stocks such as these may offer strong returns in the short term, but for now the long term potential of the company is not substantiated -- by the numbers, at least.