Incyte has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 8.6% to $114.25 per share while the index has gained 8.2%.
Is now a good time to buy INCY? Find out in our full research report, it’s free.
Why Does Incyte Spark Debate?
Founded in 1991 and evolving from a genomics research firm to a commercial-stage drug developer, Incyte (NASDAQ: INCY) is a biopharmaceutical company that discovers, develops, and commercializes proprietary therapeutics for cancer and inflammatory diseases.
Two Things to Like:
1. Long-Term Revenue Growth Shows Strong Momentum
A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Incyte grew its sales at a solid 15% compounded annual growth rate. Its growth beat the average healthcare company and shows its offerings resonate with customers.
2. Increasing Free Cash Flow Margin Juices Financials
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Incyte’s margin expanded by 8 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Incyte’s free cash flow margin for the trailing 12 months was 27.7%.
One Reason to Be Careful:
New Investments Fail to Bear Fruit as ROIC Declines
We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.
Unfortunately, Incyte’s ROIC has decreased significantly over the last few years. Only time will tell if its new bets can bear fruit and potentially reverse the trend.
Final Judgment
Incyte has huge potential even though it has some open questions. At $114.25 per share (or 20.3× forward P/E), is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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