3 Reasons to Sell ELAN and 1 Stock to Buy Instead

Elanco has been treading water for the past six months, recording a small loss of 1.3% while holding steady at $13.27.

Is now the time to buy Elanco, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is Elanco Not Exciting?

We're swiping left on Elanco for now. Here are three reasons why we avoid ELAN and a stock we'd rather own.

1. Weak Constant Currency Growth Points to Soft Demand

We can better understand Specialty Pharmaceuticals companies by analyzing their constant currency revenue. This metric excludes currency movements, which are outside of Elanco’s control and are not indicative of underlying demand.

Over the last two years, Elanco’s constant currency revenue averaged 2.4% year-on-year growth. This performance slightly lagged the sector and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

2. EPS Growth Has Stalled

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Elanco’s flat EPS over the last five years was below its 8.1% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

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? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Elanco’s five-year average ROIC was negative 3.2%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

Final Judgment

Elanco isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 16.4× forward P/E (or $13.27 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. Let us point you toward the most entrenched endpoint security platform on the market.

Stocks We Like More Than Elanco

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