Biotech companies that know how to acquire the right assets are the companies that you want to acquire. Alexion Pharmaceuticals is a company that a firm like Goldman Sachs has generally gone cold on in recent years. But you may have to look at the entire industry before you automatically discard Alexion. Cash Return on Invested Capital is something that you are going to want to survey when you are evaluating a stock. Firms are beginning to spend more on research and development. Swedish biotechnology firms spent around 4.1 million dollars on research and development alone. You may want to make a note of how U.S. firms are second in overall Research &Development spending, despite having the most biotechnology firms in the world.
Enterprise value is something that can also be used to compare different companies against each other. You may want to make sure that a company you are investing in happens to be allocating a correct amount of capital into research and development. Ascletis is a company that can be impacted by the large macroeconomic outlook in a country like China.
United Therapeutics is one of those firms that saw a 31% increase in profits in past years. Is this type of increase normal within the biotechnology sector? No, it is not. The truth of the matter is that you also want to look at the amount of stock buy backs that a company like United Therapeutics will be involved in before deciding whether to invest in that firm over the long term. Immucell Corp is a smaller stock that typically trades from $7.00 to $11.00 on a regular basis, so you won’t get much of a yield from the stock, but the truth is that you are talking about a consistent situation when looking at long term investments. Positive net income and revenue growth are something that can definitely make a difference when you are talking about Biogen Inc.
Are you getting a good amount of return on equity? This is a basic question that you should be able to answer about any stock, and a biotechnology company is no different. If a particular company is not being properly represented in court over different medical lawsuits, then you may want to stay away from the stock. If you look at the financial records of a biotechnology, finding that they pay portions of their legal team half of a million dollars, then you may find it difficult to stay ahead once you happen to invest in such a company.
Are there a number of unnecessary expenditures out there? If you find that a company is spending too much money on endorsement deals, then you have to make an adjustment to your portfolio. You should also look at how much a company is spending on marketing. If you find that a company like AstroZeneca is spending 31% of its total investments on marketing, then you will find that this level of spending on marketing can be extremely beneficial. If you find that a company has cut their advertising budget by 20% then, you are at least going to take some short term losses, in that case, you may want to ask the hard questions about what a company is actually investing money in.
It is important for investors to ask those tough questions. A CEO may get a 70% pay increase, but if the stock performance does not fit that type of increase, then you may want to avoid such a company. A ten year study, looking at a company’s dividends can make a difference. Investors value such studies.