Vertex Pharmaceuticals shares fell by -2.1% Friday, and are now trading at a price of $424.68. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
Vertex Pharmaceuticals's Valuation Is in Line With Its Sector Averages:
Vertex Pharmaceuticals Incorporated, a biotechnology company, engages in developing and commercializing therapies for treating cystic fibrosis (CF). The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 35.0 and an average price to book (P/B) ratio of 7.92. In contrast, Vertex Pharmaceuticals has a trailing 12 month P/E ratio of 31.9 and a P/B ratio of 6.63.
Vertex Pharmaceuticals's PEG ratio is 2.43, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
An Exceptionally Strong Balance Sheet:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $3,048 | $4,163 | $6,206 | $7,574 | $8,931 | $9,654 |
| Revenue Growth | n/a | 36.59% | 49.08% | 22.06% | 17.91% | 8.1% |
| Operating Margins | 21% | 28% | 46% | 37% | 48% | 40% |
| Net Margins | 69% | 28% | 44% | 31% | 37% | 36% |
| Net Income (MM) | $2,097 | $1,177 | $2,712 | $2,342 | $3,322 | $3,470 |
| Net Interest Expense (MM) | -$34 | $59 | $58 | -$62 | -$55 | -$45 |
| Depreciation & Amort. (MM) | $72 | $107 | $110 | $126 | $148 | $161 |
| Earnings Per Share | $8.09 | $4.51 | $10.29 | $9.01 | $12.82 | $13.32 |
| EPS Growth | n/a | -44.25% | 128.16% | -12.44% | 42.29% | 3.9% |
| Diluted Shares (MM) | 260 | 262 | 263 | 260 | 259 | 261 |
| Free Cash Flow (MM) | $1,175 | $1,494 | $2,994 | $2,408 | $3,925 | $4,205 |
| Capital Expenditures (MM) | $95 | $75 | $260 | $235 | $205 | $176 |
| Current Ratio | 3.43 | 3.61 | 4.33 | 4.46 | 4.83 | 4.08 |
Vertex Pharmaceuticals benefits from rapidly growing revenues and increasing reinvestment in the business, strong operating margins with a positive growth rate, and generally positive cash flows. The company's financial statements show an excellent current ratio and positive EPS growth.
