Vertex Pharmaceuticals 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 13.9% to $514.18 per share while the index has gained 14%.
Is now the time to buy VRTX? Find out in our full research report, it’s free.
Why Does Vertex Pharmaceuticals Spark Debate?
Founded in 1989 with a mission to create medicines that treat the underlying causes of disease rather than just symptoms, Vertex Pharmaceuticals (NASDAQ: VRTX) develops and markets transformative medicines for serious diseases, with a focus on cystic fibrosis, sickle cell disease, and pain management.
Two Things to Like:
1. Long-Term Revenue Growth Shows Strong Momentum
A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Vertex Pharmaceuticals grew its sales at a solid 13.5% compounded annual growth rate. Its growth beat the average healthcare company and shows its offerings resonate with customers.
2. Adjusted Operating Margin Rising, Profits Up
Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses — everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.
Looking at the trend in its profitability, Vertex Pharmaceuticals’s adjusted operating margin rose by 38.6 percentage points over the last two years, as its sales growth gave it immense operating leverage. Its adjusted operating margin for the trailing 12 months was 43.6%.
One Reason to Be Careful:
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).
Unfortunately, Vertex Pharmaceuticals’s ROIC averaged 2.4 percentage point decreases each year over the last few years. Only time will tell if its new bets can bear fruit and potentially reverse the trend.
Final Judgment
Vertex Pharmaceuticals has huge potential even though it has some open questions. At $514.18 per share (or 41.4× forward P/E), is now the right time to buy the stock? See for yourself in our in-depth research report, it’s free.
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