ANI Pharmaceuticals has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 37.4% to $92.06 per share while the index has gained 33.2%.
Is now the time to buy ANI Pharmaceuticals, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free for active Edge members.
Why Is ANI Pharmaceuticals Not Exciting?
We're cautious about ANI Pharmaceuticals. 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 $747.4 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 one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D. It also removes various one-time costs to paint a better picture of normalized profits.
Analyzing the trend in its profitability, ANI Pharmaceuticals’s adjusted operating margin decreased by 5.6 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 25.4%.
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).
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 isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 14.3× forward P/E (or $92.06 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. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
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