Biogen has had an impressive run over the past six months as its shares have beaten the S&P 500 by 19.7%. The stock now trades at $183.50, marking a 25.5% gain. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Biogen, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Biogen Not Exciting?
We’re happy investors have made money, but we don't have much confidence in Biogen. Here are three reasons we avoid BIIB and a stock we'd rather own.
1. Revenue Spiraling Downwards
A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Biogen’s demand was weak over the last five years as its sales fell at a 6% annual rate. This was below our standards and is a sign of lacking business quality.
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Biogen, its EPS declined by 14.2% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
3. 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, Biogen’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Biogen isn’t a terrible business, but it doesn’t pass our quality test. With its shares beating the market recently, the stock trades at 11.3× forward P/E (or $183.50 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better investments elsewhere. Let us point you toward the most dominant software business in the world.
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