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.
There are currently many different techniques concerning forecasting the market as a whole as well as
predicting future values of individual securities such as Gilead Sciences. Regardless of method or technology, to accurately forecast the stock market is more a matter of luck rather than a particular technique. Nevertheless, trying to predict the stock market accurately is still an essential part of the overall investment decision process. Using different forecasting techniques and comparing the results might improve your chances of accuracy even though unexpected events may often change the
market sentiment and impact your forecasting results.
Predictive Modules for Gilead Sciences
Sophisticated investors, who have witnessed
many market ups and downs, anticipate that the market will even out over time. This tendency of Gilead Sciences' price to converge to an average value over time is called mean reversion. However, historically, high market prices usually discourage investors that believe in mean reversion to invest, while low prices are viewed as an opportunity to buy.
Please note, it is not enough to conduct a financial or market analysis of a single entity such as Gilead Sciences. Your research has to be compared to or analyzed against Gilead Sciences' peers to derive any actionable benefits. When done correctly, Gilead Sciences' competitive analysis will give you plenty of quantitative and qualitative data to validate your investment decisions or develop an entirely new strategy toward taking a position in Gilead Sciences.
How important is Gilead Sciences's Liquidity
Gilead Sciences
financial leverage refers to using borrowed capital as a funding source to finance Gilead Sciences ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. Gilead Sciences financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to Gilead Sciences' owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Gilead Sciences' financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the
breakdown between Gilead Sciences's total debt and its cash.
Gilead Sciences Gross Profit
Gilead Sciences Gross Profit growth is one of the most critical measures in evaluating the company. The Gross Profit growth rate is calculated simply by comparing Gilead Sciences previous period's values with its current period's values. Each time period you're measuring should be of equal lengths the increase or decrease, in a company's Gross Profit between two periods. Here we show Gilead Sciences Gross Profit growth over the last 10 years. Please check Gilead Sciences'
gross profit and other
fundamental indicators for more details.
An Additional Perspective On Gilead Sciences
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.
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David Taylor is a Senior Member of Macroaxis Editorial Board - Sector Analysis. David is a professional writer who writes for multiple investment news outlets. His primary focus is dynamic movements in financial markets and effects of economic volatility on North American industries and sectors. David has many years of experience in financial service industry including working with major banks as a FX trader. In his free time, he does a lot of outdoors type activities including rock climbing, mountain biking, hiking, mountaineering and kayaking in the summer, and snowboarding in the winter.
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