Why Investors Are Buying Celgene Like Crazy
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With Celgene (NASDAQ: CELG) trading show off 52-week highs, I decided to take a closer look at what all of the excitement is about. Here are the five points I looked at while researching the company:
Celgene's trailing 5 year valuation metrics suggest that it is undervalued. Celgene's current P/B ratio is 6.0 and it has averaged 6.6 over the past 5 years with a high of 11.0 and low of 4.6. Celgene's current P/S ratio is 7.3 and it has averaged 11.3 over the past 5 years with a high of 21.6 and low of 6.1. Celgene just recently became profitable so there is limited data for the P/E trading range. However, it is currently trading at a 31 trailing P/E multiple. Note, since Celgene recently became profitable, some of the trailing 5-year valuation metrics may send a false message. The consensus price target for the analysts who follow Celgene is $79. That is upside of just 7% and suggests that the stock is fairly at these levels and has little upside from here.
Celgene is trading at about $74 a share with analysts expecting the company to report earnings of $4.68 per share next year for a forward P/E of 16. Revenues are expected to rise 13%. According to Yahoo, publically traded comps include Amgen (NASDAQ: AMGN), Astrazeneca (NYSE: AZN), and Bristol-Myers Squibb (NYSE: BMY). Amgen is trading at a forward P/E multiple of 12 with revenues expected to rise 4% next year. Astrazeneca is trading at a forward P/E multiple of 8 with revenues expected to fall 10% next year. Bristol is trading at a forward P/E multiple of 16 with revenues expected to fall 14% next year. The average forward P/E of the three companies is 12. This suggests that Celgene is slightly overvalued compared to its comps, however, the company also has the highest expected growth rate so the multiple is in line with the rest of the companies. Celgene beat earnings estimates the past 3 quarters after posting an in-line figure the previous quarter. The earnings beats have been between 3-7 cents or around a 3-7% difference from consensus. This suggests that analysts have a pretty good idea on forecasting Celgene's results and upside earnings surprises will be limited.
The stock has been in a rally mode all year interrupted with some temporary setbacks. The stock rallied over 20% from February of last year to July before falling 16% during the summer as the rest of the market was in chaos. Since then, the stock has been rallying and is now trading in the $74 area. Celgene is above its 50 day moving average, which sits at $65, and its 200 day moving average which his at $61. Big resistance on the upside is $75 which the stock tried to unsuccessfully break in 2007 and 2008. After that, there is nothing since this is the stocks all-time high. On the downside, support includes $68 followed by $66 where the 50 day moving average is.
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