Incyte (INCY), a Delaware-based biopharmaceutical company, is focused on developing and commercializing oncology products to cater to unmet medical needs. As of September 1, 2016, Incyte was trading at a forward PE (price-to-earnings) multiple of 73.1x compared to the industry average of ~29.3x.
Over the last year, Incyte’s forward PE has traded at 66.3x–372.5x. The company is trading at a much higher PE than its peers, including Vertex Pharmaceuticals (VRTX), Regeneron Pharmaceuticals (REGN), and Medivation (MDVN), which are trading at 41.2x, 29.7x, and 44.3x, respectively.
The fundamental factors affecting stock prices and valuations include the performance of existing products, new and existing collaborations, and other factors such as results of clinical trials and product approvals. In this series, we’ll look at the performance of Incyte’s existing products as well as other factors driving its revenue.
From an investor’s point of view, the two best valuation multiples for valuing companies such as Incyte are forward PE and EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiples, considering the relatively stable and visible nature of their earnings.
PE multiples represent what one share can buy for an equity investor. However, in the case of Incyte, PE multiples are too high compared to its peers in the biotechnology industry.
On a capital-structure-neutral and excess-cash-adjusted basis, Incyte currently trades at ~49.3x. That’s much higher than its competitors such as Vertex Pharmaceuticals, Regeneron Pharmaceuticals, and Medivation, which have forward EV-to-EBITDA multiples of 40.5x, 20.7x, and 57.9x, respectively.
According to data on September 1, 2016, Incyte’s stock value has decreased by 34.5% over the last 12 months. Analysts believe the stock has the potential to return ~21.6% over the next 12 months. Analysts’ recommendations show a 12-month target price of $98.27 per share compared to the last price of $80.81 per share as of September 1, 2016.
About 90% of analysts recommend a “buy” for INCY stock, and 10% recommend a “hold,” according to a Bloomberg consensus. Changes in analysts’ estimates and recommendations are based on changing trends in the stock price.
To divest the risk, you can consider ETFs such as the iShares Nasdaq Biotechnology (IBB), which holds ~3.0% of its total assets in Incyte.