Over the past six months, BioMarin Pharmaceutical’s stock price fell to $51.76. Shareholders have lost 11.5% of their capital, which is disappointing considering the S&P 500 has climbed by 13.7%. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Given the weaker price action, is now an opportune time to buy BMRN? Find out in our full research report, it’s free for active Edge members.
Why Does BioMarin Pharmaceutical Spark Debate?
Pioneering treatments for conditions that often had no previous therapeutic options, BioMarin Pharmaceutical (NASDAQ:BMRN) develops and commercializes therapies that address the root causes of rare genetic disorders, particularly those affecting children.
Two Positive Attributes:
1. Long-Term Revenue Growth Shows Momentum
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, BioMarin Pharmaceutical’s 10.7% annualized revenue growth over the last five years was decent. Its growth was slightly above the average healthcare company and shows its offerings resonate with customers.
2. Increasing Free Cash Flow Margin Juices Financials
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, BioMarin Pharmaceutical’s margin expanded by 17 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. BioMarin Pharmaceutical’s free cash flow margin for the trailing 12 months was 26.9%.
One Reason to be Careful:
Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Although BioMarin Pharmaceutical has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 2.6%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.
Final Judgment
BioMarin Pharmaceutical has huge potential even though it has some open questions. After the recent drawdown, the stock trades at 11× forward P/E (or $51.76 per share). Is now a good time to initiate a position? See for yourself in our comprehensive research report, it’s free for active Edge members .
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