Amneal trades at $12.64 and has moved in lockstep with the market. Its shares have returned 6.2% over the last six months while the S&P 500 has gained 7.9%.
Is there a buying opportunity in Amneal, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Amneal Not Exciting?
We don't have much confidence in Amneal. Here are two reasons we avoid AMRX and a stock we'd rather own.
1. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Amneal’s revenue to rise by 2.4%, a deceleration versus its 8.7% annualized growth for the past five years. This projection doesn't excite us and implies its products and services will see some demand headwinds.
2. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Amneal historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.9%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.
Final Judgment
Amneal isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 13.3× forward P/E (or $12.64 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. We’d recommend looking at one of our top digital advertising picks.
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