Many money managers have made Gilead a top investment pick when interview on some popular business shows. I never buy a stock based solely on the recommendation of a media personality. However, I will put it on my watch list and do some fundamental research and study some chart patterns.
Back in November of 2014, I decided to dollar cost average some Gilead shares using a strangle option strategy. I ended up owning 200 shares at $102.00 and made some nice profits selling covered calls. Unfortunately, the share price has been in free fall since Aug of 2015. See the chart below:
I managed to reduce my average cost down to $90.50 but Gilead tumbled to a record low on Feb 8th after the company provided guidance for fiscal 2017 revenue, which missed analysts’ expectations. See press release:
The research-based biopharmaceutical company said it expects fiscal 2017 net product sales of $22.5 billion – $24.5 billion, below the Capital IQ consensus estimate of $27.98 billion.
Gilead reported late Tuesday Q4 non-GAAP earnings of $2.70 per share, a dime better than the analyst consensus on Capital IQ. Revenue was $7.32 billion, vs. expectations of $7.16 billion.
HCV product sales, were $3.2 billion for the fourth quarter of 2016, compared to $4.9 billion for the same period in 2015.
Price: $65.93, Change: -$7.20, Percent Change: -9.85
Is Gilead turning into a value trap or a real value investment?
This stock is cheap with a PE ratio of 6.68 compared to the biotechnology industry average of 34.55. Gilead has a 3.13% dividend yield which is the highest within the industry. It has one of the highest ROEs of all companies in the biotechnology & drug industries. Although, EPS growth at Gilead is declining, it is still above the industry average.
The biggest problem with this stock is the biotech industry is experiencing positive revenue growth as a whole but Gilead has been unable to grow revenues and is losing market share. This negative trend has been continuing from the previous year when revenue growth at Gilead was -13.94% while the biotech industry was up some 202.65%.
I hate throwing good money after bad in the hopes of breaking even. So I am not big on averaging down on a losing position. I have been fighting a losing battle on this stock for quite a long time. However, I am anticipating a dead cat bounce off the bottom if some deep value or dividend investors decide to buy. I think that I should take a lost and buy something else. What do you think?