What Is Going on With BPMC Shares?

One of Wall Street's biggest winners of the day is Blueprint Medicines, a pharmaceutical company whose shares have climbed 14.1% to a price of $108.24 -- 10.45% above its average analyst target price of $98.0.

The average analyst rating for the stock is buy. BPMC outperformed the S&P 500 index by 13.0% during today's afternoon session, and by 38.8% over the last year with a return of 62.4%.

Blueprint Medicines Corporation, a precision therapy company, develops medicines for genomically defined cancers and blood disorders in the United States and internationally. The company is categorized within the healthcare sector. The catalysts that drive valuations in this sector are complex. From demographics, regulations, scientific breakthroughs, to the emergence of new diseases, healthcare companies see their prices swing on the basis of a variety of factors.

Blueprint Medicines does not publish either its forward or trailing P/E ratios because their values are negative -- meaning that each share of stock represents a net earnings loss. But we can calculate these P/E ratios anyways using the stocks forward and trailing (EPS) values of $-2.78 and $-8.37. We can see that BPMC has a forward P/E ratio of -38.9 and a trailing P/E ratio of -12.9.

The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the first quarter of 2023, the health care sector has an average P/E ratio of 30.21, and the average for the S&P 500 is 15.97.

The main limitation with P/E ratios is that they don't take into account the growth of earnings. This means that a company with a higher than average P/E ratio may still be undervalued if it has high projected earnings growth. Conversely, a company with a low P/E ratio may not present a good value proposition if its projected earnings are stagnant.

When we divide Blueprint Medicines's P/E ratio by its projected 5 year earnings growth rate, we obtain its Price to Earnings Growth (PEG) ratio of 0.18. Since a PEG ratio of 1 or less may indicate that the company's valuation is proportionate to its growth potential, we see here that investors are undervaluing BPMC's growth potential .

Another key to assessing a company's health is to look at its free cash flow, which is calculated on the basis of its total cash flow from operating activities minus its capital expenditures. Capital expenditures are the costs of maintaining fixed assets such as land, buildings, and equipment. From Blueprint Medicines's last four annual reports, we are able to obtain the following rundown of its free cash flow:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) Free Cash Flow ($ k) YoY Growth (%)
2023 -436,847 16,062 -452,909 11.4
2022 -502,277 8,919 -511,196 -69.41
2021 -298,653 3,089 -301,742 -178.6
2020 387,035 3,159 383,876 231.45
2019 -278,015 14,013 -292,028 -55.59
2018 -175,009 12,677 -187,686
  • Average free cash flow: $-226947500.0
  • Average free cash flown growth rate: -13.6 %
  • Coefficient of variability (the lower the better): 0.0 %

If it weren't negative, the free cash flow would represent the amount of money available for reinvestment in the business, or for payments to equity investors in the form of a dividend. While a negative cash flow for one or two quarters is not a sign of financial troubles for BPMC, a long term trend of negative or highly erratic cash flow levels may indicate a struggling business or a mismanaged company.

Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (market value divided by book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method.

Blueprint Medicines's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 50, so the company's assets may be overvalued compared to the average P/B ratio of the Health Care sector, which stands at 4.08 as of the first quarter of 2023.

With a negative P/E ratio., a higher than Average P/B Ratio, and negative cash flows with a downwards trend, we can conclude that Blueprint Medicines is probably overvalued at current prices. The stock presents poor growth indicators because of its weak operating margins with a unknown rate of growth, and no PEG ratio.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.