Although Amgen (currently trading at $299.86 per share) has gained 9.6% over the last six months, it has trailed the S&P 500’s 29.3% return during that period. This might have investors contemplating their next move.
Does this present a buying opportunity for AMGN? Or does the price properly account for its business quality and fundamentals?
Why Does AMGN Stock Spark Debate?
Founded in 1980 during the early days of the biotechnology revolution, Amgen (NASDAQ: AMGN) is a biotechnology company that discovers, develops, and manufactures innovative medicines to treat serious illnesses like cancer, osteoporosis, and autoimmune diseases.
Two Positive Attributes:
1. Long-Term Revenue Growth Shows Momentum
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Amgen grew its sales at a decent 7.7% compounded annual growth rate. Its growth was slightly above the average healthcare company and shows its offerings resonate with customers.
2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Amgen has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the healthcare sector, averaging 29.8% over the last five years.
One Reason to be Careful:
New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Amgen’s ROIC has unfortunately decreased significantly. Only time will tell if its new bets can bear fruit and potentially reverse the trend.
Final Judgment
Amgen’s positive characteristics outweigh the negatives. With its shares trailing the market in recent months, the stock trades at 14.5× forward P/E (or $299.86 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free for active Edge members.
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