Amphastar Pharmaceuticals (AMPH)

Pharmaceutical company Amphastar Pharmaceuticals (NASDAQAMPH) fell short of the market’s revenue expectations in Q1 CY2025, with sales flat year on year at $170.5 million. Its non-GAAP profit of $0.74 per share was 7.6% above analysts’ consensus estimates.

Company Overview

Founded in 1996 and known for its expertise in complex drug formulations, Amphastar Pharmaceuticals (NASDAQ:AMPH) develops and manufactures technically challenging injectable and inhalation medications, including both generic and proprietary pharmaceutical products.

The generic pharmaceutical industry operates on a volume-driven, low-cost business model, producing bioequivalent versions of branded drugs once their patents expire. These companies benefit from consistent demand for affordable medications, as they are critical to reducing healthcare costs. Generics typically face lower R&D expenses and shorter regulatory approval timelines compared to branded drug makers, enabling cost efficiencies. However, the industry is highly competitive, with intense pricing pressures, thin margins, and frequent legal challenges from branded pharmaceutical companies over patent disputes. Looking ahead, the industry is supported by tailwinds such as the role of AI in streamlining drug development (reverse engineering complex formulations) and manufacturing efficiency (optimize processes and remove inefficiencies). Governments and insurers' focus on reducing drug costs can also boost generics' adoption. However, headwinds include escalating pricing pressure from large buyers like pharmacy chains and healthcare distributors as well as evolving regulatory hurdles.

Amphastar faces competition from pharmaceutical companies specializing in injectable and inhalation markets, including Pfizer (NYSE:PFE), Teva Pharmaceutical Industries (NYSE:TEVA), Viatris (NASDAQ:VTRS), Sandoz (NYSE:SDZ), Fresenius Kabi, and Hikma Pharmaceuticals (OTC:HKMPY). In the diabetes care space, particularly for insulin products, Amphastar competes with Novo Nordisk (NYSE:NVO) and Eli Lilly (NYSE:LLY).

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 $730.7 million in revenue over the past 12 months, Amphastar 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. On the bright side, Amphastar Pharmaceuticals’s smaller revenue base allows it to grow faster if it can execute well.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Amphastar Pharmaceuticals’s 17.4% annualized revenue growth over the last five years was impressive. Its growth beat the average healthcare company and shows its offerings resonate with customers, a helpful starting point for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Amphastar Pharmaceuticals’s annualized revenue growth of 18.7% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, Amphastar Pharmaceuticals missed Wall Street’s estimates and reported a rather uninspiring 0.8% year-on-year revenue decline, generating $170.5 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 1.2% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D.

Amphastar Pharmaceuticals has been an efficient company over the last five years. It was one of the more profitable businesses in the healthcare sector, boasting an average operating margin of 22.6%.

Looking at the trend in its profitability, Amphastar Pharmaceuticals’s operating margin rose by 22.9 percentage points over the last five years, as its sales growth gave it immense operating leverage. Zooming in on its more recent performance, we can see the company’s trajectory is intact as its margin has also increased by 3.6 percentage points on a two-year basis.

This quarter, Amphastar Pharmaceuticals generated an operating profit margin of 21.9%, down 6.1 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Amphastar Pharmaceuticals’s EPS grew at an astounding 60.9% compounded annual growth rate over the last five years, higher than its 17.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Amphastar Pharmaceuticals’s earnings can give us a better understanding of its performance. As we mentioned earlier, Amphastar Pharmaceuticals’s operating margin declined this quarter but expanded by 22.9 percentage points over the last five years. Its share count also shrank by 1.3%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q1, Amphastar Pharmaceuticals reported EPS at $0.74, down from $1.04 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 7.6%. Over the next 12 months, Wall Street expects Amphastar Pharmaceuticals’s full-year EPS of $3.56 to shrink by 7.3%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Amphastar Pharmaceuticals has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 18.7% over the last five years, quite impressive for a healthcare business.

Taking a step back, we can see that Amphastar Pharmaceuticals’s margin expanded by 11.2 percentage points during that time. This is encouraging because it gives the company more optionality.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Amphastar Pharmaceuticals’s five-year average ROIC was 13.9%, higher than most healthcare businesses. This illustrates its management team’s ability to invest in profitable growth opportunities and generate value for shareholders.

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. Over the last few years, Amphastar Pharmaceuticals’s ROIC has increased. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

Amphastar Pharmaceuticals reported $239.1 million of cash and $604.1 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $279.3 million of EBITDA over the last 12 months, we view Amphastar Pharmaceuticals’s 1.3× net-debt-to-EBITDA ratio as safe. We also see its $19.68 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Amphastar Pharmaceuticals beat analysts’ EPS expectations this quarter. On the other hand, its revenue missed. Overall, this was a weaker quarter. The stock traded down 1.7% to $24 immediately following the results.

Updated: May 21, 2025 at 11:50 PM EDT

Before investing in or passing on Amphastar Pharmaceuticals, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Amphastar Pharmaceuticals isn’t a bad business, but we have other favorites. To kick things off, its revenue growth was impressive over the last five years. And while Amphastar Pharmaceuticals’s subscale operations give it fewer distribution channels than its larger rivals, its rising cash profitability gives it more optionality.

Amphastar Pharmaceuticals’s P/E ratio based on the next 12 months is 7.3x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $32.40 on the company (compared to the current share price of $24.71).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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