United Therapeutics has been on fire lately. In the past six months alone, the company’s stock price has rocketed 44.4%, reaching $448.91 per share. This performance may have investors wondering how to approach the situation.
Following the strength, is UTHR a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free for active Edge members.
Why Is UTHR a Good Business?
Founded by a mother seeking treatment for her daughter's pulmonary arterial hypertension, United Therapeutics (NASDAQ: UTHR) develops and commercializes medications for chronic lung diseases and other life-threatening conditions, with a focus on pulmonary hypertension treatments.
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, United Therapeutics grew its sales at an impressive 17.3% compounded annual growth rate. Its growth beat the average healthcare company and shows its offerings resonate with customers.
2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
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.
United Therapeutics has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the healthcare sector, averaging an eye-popping 34.9% over the last five years.
3. New Investments Bear Fruit as ROIC Jumps
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, United Therapeutics’s ROIC has increased significantly over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.
Final Judgment
These are just a few reasons why we think United Therapeutics is a great business, and after the recent rally, the stock trades at 15.2× forward P/E (or $448.91 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .
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