2 Reasons to Watch BMRN and 1 to Stay Cautious

Over the last six months, BioMarin Pharmaceutical’s shares have sunk to $55.23, producing a disappointing 16.7% loss while the S&P 500 was flat. This might have investors contemplating their next move.

Given the weaker price action, is this a buying opportunity for BMRN? Find out in our full research report, it’s free.

Why Does BioMarin Pharmaceutical Spark Debate?

Pioneering treatments for conditions that often had no previous therapeutic options, BioMarin Pharmaceutical (NASDAQ:BMRN) develops and commercializes therapies that address the root causes of rare genetic disorders, particularly those affecting children.

Two Things to Like:

1. Long-Term Revenue Growth Shows Momentum

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, BioMarin Pharmaceutical’s 10.3% annualized revenue growth over the last five years was decent. Its growth was slightly above the average healthcare company and shows its offerings resonate with customers.

2. Increasing Free Cash Flow Margin Juices Financials

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, BioMarin Pharmaceutical’s margin expanded by 14.9 percentage points over the last five years. This is encouraging because it gives the company more optionality. BioMarin Pharmaceutical’s free cash flow margin for the trailing 12 months was 21.2%.

One Reason to be Careful:

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).

Although BioMarin Pharmaceutical has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 1.3%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.

Final Judgment

BioMarin Pharmaceutical’s merits more than compensate for its flaws. After the recent drawdown, the stock trades at 12.3× forward P/E (or $55.23 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.

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