Supernus Pharmaceuticals’s 36.8% return over the past six months has outpaced the S&P 500 by 20.3%, and its stock price has climbed to $43.99 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Supernus Pharmaceuticals, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Supernus Pharmaceuticals Not Exciting?
We’re glad investors have benefited from the price increase, but we don't have much confidence in Supernus Pharmaceuticals. Here are three reasons you should be careful with SUPN and a stock we'd rather own.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within healthcare, a stretched historical view may miss new innovations or demand cycles. Supernus Pharmaceuticals’s recent performance shows its demand has slowed as its annualized revenue growth of 2.4% over the last two years was below its five-year trend. 
2. Fewer Distribution Channels Limit its Ceiling
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With just $665.1 million in revenue over the past 12 months, Supernus Pharmaceuticals is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.
3. 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).
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, Supernus Pharmaceuticals’s ROIC has decreased over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
Supernus Pharmaceuticals’s business quality ultimately falls short of our standards. With its shares beating the market recently, the stock trades at 22.1× forward P/E (or $43.99 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at a top digital advertising platform riding the creator economy.
Stocks We Would Buy Instead of Supernus Pharmaceuticals
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