Motley Fool .Goldman Bashing VRTX. That's the problem. read
Motley Fool 11/2/12
Saying it's "more cautious" about Vertex's drug pipeline, Goldman runs down a list of clinical trials Vertex drugs are undergoing, ticking each off, one at a time, and explaining why it sees none of them as likely "catalysts" to drive the stock upwards. The analyst isn't particularly enthused over Vertex's "recently announced cross-company collaborations" with Johnson & Johnson (NYSE: JNJ ) and GlaxoSmithKline (NYSE: GSK ) either, arguing that these arrangements "do not change the fundamental value of VRTX's nuc (VX-135)." (That's Vertex's hepatitis C drug).
But what about the value of the stock? At 23 times earnings, Vertex doesn't look particularly expensive for a drug stock (many of which have no profits at all, and so no P/E ratios). That said, if Vertex only grows earnings at 19% per year going forward, the consensus estimate for such growth, then 23 times earnings may in fact be a bit too expensive for the growth rate. What's more, Goldman thinks Vertex will struggle to hit even the 19%. Looking out toward fiscal year 2015, Goldman says it's expecting revenues will grow no faster than at 10% ... and perhaps won't grow at all, but rather shrink 2%.
Conclusion: If everything goes wrong, and Vertex "misses" its numbers, the stock's badly overvalued. If everything right, and Vertex meets expectations, the company's only slightly overvalued. Suffice it to say that this does not bode well for investors.