Over the past six months, Incyte has been a great trade, beating the S&P 500 by 8.1%. Its stock price has climbed to $95.88, representing a healthy 11.3% increase. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Following the strength, is INCY a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Does INCY Stock 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 performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Incyte’s sales grew at a solid 14% 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 7.3 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 26.3%.
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 positive characteristics outweigh the negatives, and with its shares topping the market in recent months, the stock trades at 13.2× forward P/E (or $95.88 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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