BioMarin Pharmaceutical trades at $66.53 and has moved in lockstep with the market. Its shares have returned 9.3% over the last six months while the S&P 500 has gained 13.6%.
Is now the time to buy BioMarin Pharmaceutical, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is BioMarin Pharmaceutical Not Exciting?
We’re sitting this one out for now. Here are three reasons why BMRN doesn’t excite us, plus one stock we’d rather own.
1. Shrinking Adjusted Operating Margin
Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses — everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.
Analyzing the trend in its profitability, BioMarin Pharmaceutical’s adjusted operating margin decreased by 4.5 percentage points over the last two 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 16.4%.
2. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
BioMarin Pharmaceutical historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 2.8%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.
3. High Debt Levels Increase Risk
Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.
BioMarin Pharmaceutical’s $4.19 billion of debt exceeds the $874 million of cash on its balance sheet. Furthermore, its 6× net-debt-to-EBITDA ratio (based on its EBITDA of $513.6 million over the last 12 months) shows the company is overleveraged.
At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. BioMarin Pharmaceutical could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.
We hope BioMarin Pharmaceutical can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.
Final Judgment
BioMarin Pharmaceutical’s business quality ultimately falls short of our standards. That said, the stock currently trades at 10.7× forward P/E (or $66.53 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We’re pretty confident there are superior stocks to buy right now. We’d suggest looking at the most entrenched endpoint security platform on the market.
Stocks We Would Buy Instead of BioMarin Pharmaceutical
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