Gilead Sciences Story

Gilead Sciences -- USA Stock  

USD 73.70  0.74  0.99%

Macroaxis News
  
By David Taylor

Gilead Sciences made a $10 billion bet and lost.  They invested heavily into a drug that was denied release by the FDA.  Naturally, the stock was sold off sharply.  While the stock was sitting at highs of nearly $50.00, it is now a mere 10% of the level now.  But, just because the stock is beaten down as it is, does that mean it is a bad bet?

 

Pharmaceutical Products
Fama & French Classification
Gilead Science may be poised to see its stock price higher for a few reasons.

Gilead Science took a bad hit when their bet on a medical trial failed.  Subsequently, their stock price has come down considerably. But, the company is still profitable and is very focused on growth ahead.  Also, market forces should easily push the stock price higher than where it is when looked at from a price-to-earnings ratio.  For that matter, by any matrix, the stock is cheap and should go higher.  




Gilead Sciences made a $10 billion bet and lost.  They invested heavily into a drug that was denied release by the FDA.  Naturally, the stock was sold off sharply.  While the stock was sitting at highs of nearly $50.00, it is now a mere 10% of the level now.  But, just because the stock is beaten down as it is, does that mean it is a bad bet?

The first thing you see when you start to evaluate an investment into the company is the matrix of its valuation.  Pick anything, with either its stock price to free cash flow ratio, stock price to earnings ratio or stock price to sales ratio and the stock is dirt cheap.  But, just because a company’s stock is dirt cheap, does that necessarily mean the company’s stock will necessarily go higher?

First, the stock is trading at $75.00 per share.  Here are the earnings for the company:

2011:    $1.81

2012:    $1.71  

2013:    $2.01 

2014:    $7.95  

2015:  $12.37 

The company’s stock is trading at a variable of 6-times earnings.  That is incredibly low considering the earnings that it does have.  However, I will acknowledge the problems that this company had with its failed drug trials, and the subsequent sell-off of the stock from $125.00 all the way down to $75.00.  Fortunately, so does the company itself.  

The company acknowledges that future growth may be difficult with two of its best-selling drugs for Hepatitis-C and HIV.  The company is actively seeking out growth from acquisitions and has already jumped in to purchase some other companies.  But, buying growth usually comes at a  price, and that price is debt-servicing.  The company has taken on more debt.  But, in that process it has not pushed its ratio for debt-to-assets, and, in fact the assets have multiplied by a factor of 3 over the past 5 years.  

Since its debt-to-assets ratio is still very manageable, the company can grow from this point and begin to work towards acquiring more companies to grow.  Gilead is sitting on a great deal of cash.  So, the company has the ability to acquire without taking on any more debt from this point forward.  That is a huge advantage considering they are a company that is looking to expand its growth through acquisition.  

The real thing that I see in this company is the price of the stock.  Gilead, despite trading at $75.00 per share, it is ultra-cheap.  This is the entire point of what I like about this company.  They have the cash that I mentioned.  They have a great deal of revenue.  They are profitable.  And they are cheap.  They are ripe for being acquired.  It is not too far of a reach to see another drug maker to pick this company up propping up the price of the stock instantly.  The company’s stock should easily be trading at 15 times earnings.  That is twice the price right now.  Given that variable, I see the market correcting itself and coming more in line with the potential that this company offers.  

The beauty of the stock market is that there are individuals out there that look for potential investments into companies like this.  These individuals whole role is to make sure there is price continuity.  Because of that I see this stock’s price correcting itself over the course of the next year, trading at a price to earnings ratio more akin to the average market.  That means a potential large move upward in the stock.  That is what makes this stock such a great buy. 

Story Momentum

This media report from Macroaxis distributed on January 10, 2017 was a factor to the next trading day price decrease.The overall trading delta against the next closing price was 1.65% . The overall trading delta when the story was published against the current closing price is 0.81% .

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Gilead Sciences is currently under evaluation in beta category among related companies. Beta is one of the most important measures of equity market volatility. Beta can be thought of as asset elasticity or sensitivity to market. In other words, it is a number that shows the relationship of financial instrument to the financial market in which this instrument is traded. For example if Beta of equity is 2, it will be expected to significantly outperform market when market is going up and significantly underperform when market is going down. Similarly, Beta of 1 indicates that an asset and market will generate similar returns during over time.
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