Incyte has had an impressive run over the past six months as its shares have beaten the S&P 500 by 19.6%. The stock now trades at $86.01, marking a 38% gain. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now still a good time to buy INCY? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.
Why Does Incyte Spark Debate?
Founded in 1991 and evolving from a genomics research firm to a commercial-stage drug developer, Incyte (NASDAQ: INCY) is a biopharmaceutical company that discovers, develops, and commercializes proprietary therapeutics for cancer and inflammatory diseases.
Two Things to Like:
1. Long-Term Revenue Growth Shows Strong Momentum
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. Luckily, Incyte’s sales grew at a solid 13.9% compounded annual growth rate over the last five years. Its growth beat 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, Incyte’s margin expanded by 7.5 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. Incyte’s free cash flow margin for the trailing 12 months was 24%.
One Reason to be Careful:
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).
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. Unfortunately, Incyte’s ROIC has decreased significantly over the last few years. Only time will tell if its new bets can bear fruit and potentially reverse the trend.
Final Judgment
Incyte’s merits more than compensate for its flaws, and with its shares beating the market recently, the stock trades at 14.2× forward P/E (or $86.01 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.
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