Amphastar Pharmaceuticals Inc (AMPH, Financial) has experienced a notable daily gain of 15.39%, yet its three-month performance reflects a loss of 15.75%. With an Earnings Per Share (EPS) of $1.95, investors may question whether the stock is significantly overvalued. To address this, we present a valuation analysis that delves into the company's fair value in relation to its market price.
Company Overview
Amphastar Pharmaceuticals Inc is a biopharmaceutical entity specializing in the development, manufacturing, and marketing of complex generic and proprietary injectable, inhalation, and intranasal products. With a focus on technically challenging products, the company also markets insulin API products. Their products are primarily utilized in hospitals and urgent care settings and distributed through group purchasing organizations and drug wholesalers. Amphastar Pharmaceuticals operates predominantly in the United States, with additional operations in China and France. A stark contrast is evident between the current stock price of $52.41 and the GF Value of $32.83, suggesting a potential overvaluation worth exploring.
Understanding GF Value
The GF Value is a proprietary metric that estimates the intrinsic value of a stock. It is determined by historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and projected future business performance. The GF Value Line visualizes the stock's fair trading value, suggesting that if a stock price is significantly above this line, it is overvalued and may offer poor future returns. Conversely, a price below the GF Value Line could indicate higher future returns. Currently, Amphastar Pharmaceuticals (AMPH, Financial) appears significantly overvalued, with a market cap of $2.60 billion and a stock price substantially above the GF Value Line.
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Financial Strength
Investing in companies with solid financial strength is crucial to mitigate the risk of permanent loss. Amphastar Pharmaceuticals' cash-to-debt ratio of 0.31 ranks lower than 68.05% of its industry peers, suggesting some financial vulnerabilities. However, with a financial strength rating of 6 out of 10, the company's financial health remains fair. The following chart displays Amphastar Pharmaceuticals' debt and cash over the past years:
Profitability and Growth
Profitable companies, particularly those with consistent long-term profitability, pose less investment risk. Amphastar Pharmaceuticals has maintained profitability for 7 out of the past 10 years, with a robust operating margin of 24.29%, outperforming 90.35% of its industry counterparts. The company's profitability score is a solid 6 out of 10. In terms of growth, Amphastar Pharmaceuticals has shown promising figures, with a 3-year average annual revenue growth of 13.8%, ranking above 73.39% of the industry, and a 3-year average EBITDA growth rate of 19.7%, surpassing 67.58% of its competitors.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) provides insight into its profitability. Ideally, ROIC should exceed WACC. Amphastar Pharmaceuticals has a ROIC of 18.24, significantly higher than its WACC of 8.73, indicating efficient capital utilization. Below is a historical comparison of the company's ROIC versus WACC:
Conclusion
Despite its fair financial condition and profitability, Amphastar Pharmaceuticals (AMPH, Financial) is significantly overvalued when considering its GF Value. The company's growth is commendable, outpacing a majority within the Drug Manufacturers industry. For a deeper dive into Amphastar Pharmaceuticals' financials, interested investors can review its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
