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Is Amneal Pharmaceuticals (AMRX) a Suitable Pick for Value Investors?

·5 min read

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Amneal Pharmaceuticals AMRX stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Amneal Pharmaceuticals has a trailing twelve months PE ratio of 5.96, as you can see in the chart below:

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 22.63. If we focus on the long-term PE trend, Amneal Pharmaceuticals’ current PE level puts it below its midpoint (which is 12.84) over the past five years. Moreover, the current level stands well below the highs for the stock, suggesting that it can be a solid entry point.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Further, the stock’s PE also compares favorably with the Zacks Medical sector’s trailing twelve months PE ratio, which stands at 25.56. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

We should also point out that Amneal Pharmaceuticals has a forward PE ratio (price relative to this year’s earnings) of just 4.81, so it is fair to say that a slightly more value-oriented path may be ahead for Amneal Pharmaceuticals stock in the near term too.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Amneal Pharmaceuticals has a P/S ratio of about 0.31. This is a bit lower than the S&P 500 average, which comes in at 4.7x right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

If anything, this suggests some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, Amneal Pharmaceuticals currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Amneal Pharmaceuticals a solid choice for value investors, and some of its other key metrics make this pretty clear too.

The PEG ratio for Amneal Pharmaceuticals is just 0.19, a level that is far lower than the industry average of 1.24. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, AMRX is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Amneal Pharmaceuticals might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of B and a Momentum Score of D. This gives AMRX a Zacks VGM score — or its overarching fundamental grade — of A. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been mixed at best. The full year has seen no estimate go higher in the past sixty days compared to none lower, while the next year estimate has seen one up and none down in the same time period.

However, the company did not witness any changes in consensus estimates for the full and next year in the past two months. You can see the consensus estimate trend and recent price action for the stock in the chart below:

AMNEAL PHARMACEUTICALS, INC. Price and Consensus

AMNEAL PHARMACEUTICALS, INC. Price and Consensus
AMNEAL PHARMACEUTICALS, INC. Price and Consensus

AMNEAL PHARMACEUTICALS, INC. price-consensus-chart | AMNEAL PHARMACEUTICALS, INC. Quote

Despite this somewhat mixed trend, the stock has a Zacks Rank #2 (Buy) on the back of its strong value metrics and this is why we are expecting above-average performance from the company in the near-term.

Bottom Line

Amneal Pharmaceuticals is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Further, a strong industry rank (among Top 40% of more than 250 industries) instills our confidence. However, over the past two years, the Zacks Medical – Drugs industry has clearly underperformed the broader market, as you can see below:

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.


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