About Vertex
When it comes to pharmaceutical companies of all shapes and sizes, our interest has been piqued.
These are companies that are seemingly intent on crafting and commercializing the drugs and treatments that have the potential to change the way people live and perhaps, how long they live, to a certain extent.
Additionally, one of the most fascinating things about companies like Vertex Pharmaceuticals is that they are relatively new to the Street and the industry as a whole when it comes to its more seasoned, experienced competitors such as Pfizer, Merck, Johnson & Johnson and the others that have practically run the industry for a handful of decades.
These younger companies are bringing innovation with urgency while making themselves attractive potential acquisition targets for the aforementioned companies.
While most of these young bucks have a specific focus on a certain disease, disorder or set of illnesses, Vertex harps on a few of them, including sickle cell disease, muscular dystrophy, kidney diseases and a host of other afflictions that have plagued humanity for far too long.
While from a purely social point it is a resounding positive that younger, innovative drug companies are doing their part in helping mute or completely eradicate the negative impacts of diseases and illnesses, there might just be some shareholder value to be had as well.
This is especially true if one had invested in shares of Vertex’s stock (NASDAQ: VRTX), say, five years ago, when it was trading at a share price in the neighborhood of $150, as the company’s stock has since (as of this publication) increased in value triplefold.
Unfortunately at MacroHint we don’t have a fully functioning time machine (yet), so we give ourselves the task of determining whether or not Vertex’s stock has some more value in store and ultimately, if its stock is worth considering investing in today and for the decades that follow.
Let the analysis begin.
Vertex’s stock financials
Trading at a share price of around $330 with an associated market capitalization of $85 billion, a price-to-earnings (P/E) ratio of 25.62 and no currently annually distributed dividend, shares of Vertex’s stock (NASDAQ: VRTX) seem slightly overvalued, however, it must be understood that this company is still growing at a rapid rate and there is a high likelihood of more drugs and/or treatments successfully exiting the clinical phase trials that are currently within its pipeline.
This is music to a biotechnology-crazed equity investor’s ears.
Additionally, we are almost happy that Vertex doesn’t currently issue a consistent dividend, as it would act as an unnecessary cash drain for the company and thus be money taken away from potential innovation or future strategic acquisitions.
Down the line, as this company continues to grow and become a bigger force to be reckoned with, it might become increasingly sensible for this company to dish out a dividend, however, we don’t think this company is quite there yet.
All things considered thus far, we have no complaints.
As it relates to the shape of the company’s balance sheet, Vertex’s executives manage approximately $18.1 billion in terms of total assets as well as $4.2 billion in total liabilities, which to say the absolute least, is a fantastic balance sheet.
This balance sheet screams that it is ready for any economic downturn that may come its way and that it is also ready to reinvest in its current pipeline or perhaps other companies that it could afford to eat up (wholly acquire) in order to expand its already strong base of assets and intellectual property.
Did we mention that this company’s balance sheet is phenomenal?
Walking over to Income Statement Lane, Vertex’s total revenue over the last five years has been shallowly rising, which is frankly what we love to see.
We don’t like pondering investments in companies with inconsistent revenues, growth companies or not.
Instead, we crave sustainable growth to the tune of Vertex, as its total revenue in 2018 stood at just north of $3 billion, rising to $4.1 billion the next year, around $6.2 billion in 2020, all leading up to its most recently reported total annual revenue figure of just under $9 billion.
A company being able to essentially triple its total annual revenue in a sustainable, upward fashion is impressive.
No cap, as the kids say.
It also indicates that its pipeline and demand for its products have been experiencing steady growth, which is obviously not a negative in any sense.
When it comes to the company’s cash flow statement, cash flow generation hasn’t been an issue.
At all.
Namely, in keeping with Vertex Pharmaceuticals’ consistency streak, the company’s net income has, on average, over the last five years floated around the $2 billion range and as equally impressive, its total cash from operations has generally grown over that same time frame from $1.27 billion in 2018 to $4.13 billion in 2022.
For a company with as much growth as it’s already endured, we don’t think it is farfetched at all for its net income and its total cash from operations to continue growing, at an exponential rate at that.
Vertex’s stock fundamentals
It is far from uncommon for younger companies to suffer for a certain period of time and have a lower or even negative trailing twelve month (TTM) net profit margin, especially when they’re experiencing rapid growth.
But no, Vertex Pharmaceuticals thankfully doesn’t have a negative trailing twelve month net profit margin. In fact, when it comes to trailing, the industry’s average TTM net profit margin trails Vertex’s by a more than substantial amount.
For instance, according to TD Ameritrade’s platform, the company’s TTM net profit margin stands at a staggering 37.2% compared to the industry’s average of -460.20%.
According to this metric alone, Vertex leads the pack of some very stiff, strong competition and produces a fantastic amount of profit on an annualized net basis.
Lastly, with respect to Vertex’s TTM returns on assets and investment(s), they blow the competition’s average out of the water.
For example, also according to TD Ameritrade’s platform, the company’s TTM returns on assets and investment(s) are perched at 21.04% and 24.88% to the industry’s averages of -1.83% and -1.13%, both respectively.
Candidly, this is another meaningful metric that shows that Vertex is a well-run ship with a phenomenal track record of financial efficiency and profitability excellence.
Should you buy Vertex Pharmaceuticals stock?
One of the reasons we like looking into biotechnology companies is that they tend to be shielded (of course, only to a certain extent) from the macroeconomy and its overall undulations.
Vertex Pharmaceuticals is not an exception.
Given the overall shape of Vertex’s finances and relevant profitability and efficiency metrics, the current state of its pipeline and the success of its currently commercialized products and its rapid organic growth, it is our viewpoint that this company’s stock deserves a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.