What’s Driving Vertex Pharmaceuticals Stock Higher?

VRTX: Vertex Pharmaceuticals logo
VRTX
Vertex Pharmaceuticals

Vertex Pharmaceuticals stock (NASDAQ: VRTX) has seen a 33% rise this year, significantly outperforming the broader S&P500 index, down 23%. Even if we look at the longer term, VRTX stock, with 72% returns from levels seen in late 2018, has outperformed the S&P 500 index, up around 50%. VRTX stock now looks fairly valued at around $290, as discussed below.

This 72% rise for VRTX stock since late 2018 can primarily be attributed to 1. Vertex Pharmaceuticals’ revenue rose a significant 253% to $8.4 billion over the last twelve months, compared to $2.4 billion in 2018, partly offset by 2. a 53% fall in the company’s P/S ratio to 8.7x trailing revenues currently, compared to 18.4x in 2018, and 3. a 0.5%% rise in its total shares outstanding to 256 million. The increase in revenue and a rise in shares outstanding has meant that Vertex Pharmaceuticals’ revenue per share rose 251% to $32.66 over the last twelve months, vs. $9.30 in 2018. Our dashboard on Why Vertex Pharmaceuticals Stock Moved has more details.

Vertex’s massive revenue surge can be attributed to its cystic fibrosis drug – Trikafta – which saw its revenue rise from nil in 2018 to a whopping $5.7 billion in 2021. Market share gains and launches in different geographies have aided the drug’s sales. Trikafta’s peak sales are expected to be north of $7 billion.

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Earlier this week, the company announced that it secured a rolling review by the U.S. FDA for its first CRISPR gene-edited therapy for sickle cell disease and transfusion-dependent beta thalassemia. [1] This treatment could garner over $2 billion in peak sales, if approved.

Not only has Vertex seen a significant revenue growth, but it has also posted a consistent rise in operating margins from 25.4% in 2018 to 48.3% over the last twelve months. Our Vertex Pharmaceuticals Operating Income dashboard has more details.

Given the company’s strong prospects with Trikafta, its revenue is expected to see over 15% top-line growth this year to over $8.8 billion (per the consensus estimate). Assuming the current share count of 256 million (reported for Q2 2022), we arrive at the expected revenue per share of $34.27 for the full year 2022. Now, at its current levels, VRTX stock is trading at 8.3x forward expected revenues, aligning with its last three-year average of 8.0x, implying that it is fairly priced.

While VRTX stock looks appropriately priced, it is helpful to see how Vertex Pharmaceuticals’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Corcept Therapeutics vs. Amerco.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Sep 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 VRTX Return 3% 33% 295%
 S&P 500 Return -7% -23% 64%
 Trefis Multi-Strategy Portfolio -10% -25% 199%

[1] Month-to-date and year-to-date as of 9/28/2022
[2] Cumulative total returns since the end of 2016

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Notes:
  1. Vertex Pharmaceuticals Press Release, Sep 27, 2022 []