2 Reasons to Sell AMRX and 1 Stock to Buy Instead

Amneal has been on fire lately. In the past six months alone, the company’s stock price has rocketed 63.3%, reaching $13.34 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is there a buying opportunity in Amneal, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is Amneal Not Exciting?

We’re glad investors have benefited from the price increase, but we're swiping left on Amneal for now. Here are two reasons there are better opportunities than AMRX and a stock we'd rather own.

1. Free Cash Flow Margin Dropping

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, Amneal’s margin dropped by 1.9 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Amneal’s free cash flow margin for the trailing 12 months was 9%.

2. Previous Growth Initiatives Haven’t Impressed

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).

Amneal historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.1%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.

Final Judgment

Amneal’s business quality ultimately falls short of our standards. Following the recent surge, the stock trades at 16.1× forward P/E (or $13.34 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now. Let us point you toward one of our top software and edge computing picks.

Stocks We Like More Than Amneal

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