3 Reasons to Avoid ANIP and 1 Stock to Buy Instead

Since January 2021, the S&P 500 has delivered a total return of 83.6%. But one standout stock has nearly doubled the market - over the past five years, ANI Pharmaceuticals has surged 147% to $77.55 per share. Its momentum hasn’t stopped as it’s also gained 19.5% in the last six months thanks to its solid quarterly results, beating the S&P by 9.6%.

Is now the time to buy ANI Pharmaceuticals, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free for active Edge members.

Why Is ANI Pharmaceuticals Not Exciting?

We’re happy investors have made money, but we're sitting this one out for now. Here are three reasons why ANIP doesn't excite us and a stock we'd rather own.

1. 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 $826.9 million in revenue over the past 12 months, ANI 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.

2. Shrinking Adjusted Operating Margin

Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.

Looking at the trend in its profitability, ANI Pharmaceuticals’s adjusted operating margin decreased by 4.5 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 25.9%.

3. Previous Growth Initiatives Have Lost Money

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

ANI Pharmaceuticals’s five-year average ROIC was negative 3.7%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

Final Judgment

ANI Pharmaceuticals’s business quality ultimately falls short of our standards. With its shares beating the market recently, the stock trades at 10× forward P/E (or $77.55 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. Let us point you toward one of our top software and edge computing picks.

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