Biogen’s 14.4% return over the past six months has outpaced the S&P 500 by 6.2%, and its stock price has climbed to $192.84 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Biogen, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Biogen Not Exciting?
Despite the momentum, we’re cautious about 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. Any business can have short-term success, but a top-tier one grows for years. Biogen struggled to consistently generate demand over the last five years as its sales dropped at a 4.6% annual rate. This was below our standards and signals it’s a lower quality business.
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 11.4% 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
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
Over the last few years, Biogen’s ROIC has unfortunately decreased. 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. With its shares outperforming the market lately, the stock trades at 16.9× forward P/E (or $192.84 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We’re pretty confident there are superior stocks to buy right now. We’d recommend looking at one of our top digital advertising picks.
Stocks We Like More Than Biogen
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