ANI Pharmaceuticals has been treading water for the past six months, holding steady at $57.79.
Is now the time to buy ANI Pharmaceuticals, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is ANI Pharmaceuticals Not Exciting?
We're cautious about ANI Pharmaceuticals. Here are three reasons why there are better opportunities than ANIP 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 $674.1 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 7 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 25.1%.
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 4.6%, 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 9× forward P/E (or $57.79 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
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