Supernus Pharmaceuticals’s 18.3% return over the past six months has outpaced the S&P 500 by 12.3%, and its stock price has climbed to $50.84 per share. This performance may have investors wondering how to approach the situation.
Is now the time to buy Supernus Pharmaceuticals, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Supernus Pharmaceuticals Will Underperform?
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. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Supernus Pharmaceuticals’s sales grew at a mediocre 5.9% compounded annual growth rate over the last five years. This was below our standard for the healthcare sector.
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 $681.5 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
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. Over the last few years, Supernus Pharmaceuticals’s ROIC has unfortunately decreased. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
We see the value of companies making people healthier, but in the case of Supernus Pharmaceuticals, we’re out. With its shares beating the market recently, the stock trades at 27.5× forward P/E (or $50.84 per share). This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere. Let us point you toward a top digital advertising platform riding the creator economy.
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