Amphastar Pharmaceuticals’s stock price has taken a beating over the past six months, shedding 35.8% of its value and falling to $24.50 per share. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Amphastar Pharmaceuticals, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Amphastar Pharmaceuticals Not Exciting?
Even though the stock has become cheaper, we don't have much confidence in Amphastar Pharmaceuticals. Here are two reasons why there are better opportunities than AMPH and a stock we'd rather own.
1. Fewer Distribution Channels Limit its Ceiling
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With just $730.7 million in revenue over the past 12 months, Amphastar Pharmaceuticals is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Amphastar Pharmaceuticals’s revenue to stall, a deceleration versus its 17.4% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will face some demand challenges.
Final Judgment
Amphastar Pharmaceuticals isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 7.4× forward P/E (or $24.50 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better investments elsewhere. We’d suggest looking at one of our all-time favorite software stocks.
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