Is Now A Good Time To Buy Amgen?

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AMGN Dividend data by YCharts

Reasonable Valuation

Wall Street analysts are on average estimating that Amgen will produce $14.52 in earnings per share during 2019. Under this assumption, the stock is trading at a forward price to earnings ratio around 14.1. By comparison, the average company in the S&P 500 index is currently trading at a forward price to earnings ratio in the neighborhood of 16.2.

The table below compares key valuation ratios such as price to earnings, forward price to earnings, price to sales, and price to free cash flow for Amgen versus other big industry players like Novo Nordisk (NVO), Biogen (BIIB), and Celgene (CELG).

Ticker P/E Fwd P/E P/S P/FCF
AMGN 17.06 14.1 5.79 18.77
NVO 19.05 18.54 5.41 40.46
BIIB 17.57 12.58 5.44 15.02
CELG 16.63 8.28 4.45 18.66

Both in comparison to the market as a whole and by industry standards, Amgen stock is priced at fairly reasonable valuation levels.

Strong Earnings Momentum

Stock prices don't just reflect current fundamentals, but expectations about those fundamentals can be even more important. When a company is delivering better than expected earnings and expectations about future earnings are increasing, this generally means that the stock price is increasing too.

Amgen delivered better than expected numbers last quarter, in a sign of confidence, management also raised revenue and sales guidance for the full year. In this context, Wall Street analysts are increasing their earnings expectations for Amgen in both the current year and next fiscal year.

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AMGN data by YCharts

As long as the trend remains in place, increasing earnings expectations could be strong return driver for Amgen stock going forward.

Vigorous Relative Strength

Money has an opportunity cost, when you buy a stock with mediocre returns, that capital is not available for investing in companies with superior potential. Besides, winners tend to keep on winning in the stock market, so you want to invest in stocks that are not only doing well but also doing better than other alternatives.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: I wrote this article myself, and it expresses my ...

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