Biogen has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 14.4% to $218.22 per share while the index has gained 10.5%.

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Why Is Biogen Not Exciting?

We don’t have much confidence in Biogen. Here are three reasons why BIIB doesn’t excite us, plus one stock we’d rather own.

1. Revenue Spiraling Downwards

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Biogen’s demand was weak over the last five years as its sales fell at a 3% annual rate. This was below our standards and signals it’s a lower quality business.

2. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for Biogen, its EPS declined by 10.6% 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

We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.

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 bar. That said, the stock currently trades at 16.4× forward P/E (or $218.22 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We’re pretty confident there are superior stocks to buy right now. Let us point you toward one of our all-time favorite software stocks.

Stocks We Like More Than Biogen

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