Are Investors Missing Alkermes' Value After Five Years of 57% Growth?

• Ever wondered if Alkermes is a hidden gem or if it has already been discovered by the market? This deep dive will shed light on where the value may lie for curious investors.
• Alkermes' stock price has pulled back slightly, down 4.0% over the last month and hovering just below flat on a one-year view. However, it has still posted a strong 57.2% gain over the past five years.
• Much of this recent price movement has come alongside a wave of industry-wide shifts in biotech sentiment and increased speculation on future drug approvals. Notably, Alkermes has been in the headlines for ongoing updates regarding its pipeline and strategic partnerships, giving investors plenty to consider as the market re-evaluates the company's prospects.
• On our standard valuation checks, Alkermes scores 5 out of 6 for being undervalued. Next, we will break down some of the most common ways to approach valuation and hint at a more holistic method you will not want to miss by the end of this article.

Find out why Alkermes's -0.6% return over the last year is lagging behind its peers.

Approach 1: Alkermes Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company's intrinsic value by forecasting its future cash flows and discounting them back to today's dollars, providing an estimate of what the business is truly worth.

For Alkermes, the DCF model uses the latest reported Free Cash Flow of $497.6 million. Analysts have provided projections for the next five years, after which Simply Wall St extrapolates further cash flows. By 2029, free cash flow is projected to reach $591.3 million, and estimates continue showing modest growth up to 2035. All numbers are calculated in $ millions.

The DCF model arrives at an intrinsic value of $71.90 per share for Alkermes. This suggests the current market price is trading at a 60.2% discount to this estimate, which indicates a significant undervaluation, especially considering that the industry average price-to-earnings ratio is much higher than Alkermes’ own.

The DCF analysis highlights Alkermes as one of the more attractively discounted biotech names at present, with substantial potential upside if projections hold.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Alkermes is undervalued by 60.2%. Track this in your watchlist or portfolio, or discover 927 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Alkermes.

Approach 2: Alkermes Price vs Earnings

For profitable companies like Alkermes, the Price-to-Earnings (PE) ratio is a straightforward and widely used valuation tool. It reflects how much investors are willing to pay for each dollar of current earnings. This makes it particularly useful for mature businesses with stable profits.

Typical PE ratios are influenced by expectations for future growth and the perceived riskiness of a company. Higher earnings growth generally justifies a higher PE. In contrast, riskier stocks trade at lower multiples to compensate investors for uncertainty.

Alkermes currently trades at a PE ratio of 14x. For comparison, the average PE ratio among its biotech industry peers is 18.2x, and its peer group averages an even loftier 38.1x. At first glance, Alkermes looks attractively priced relative to these benchmarks.

However, Simply Wall St's proprietary “Fair Ratio” for Alkermes is calculated at 19.87x. This Fair Ratio goes beyond simple industry or peer comparisons. It blends Alkermes’ own growth outlook, profitability, size, industry context, and its specific risk profile. As a result, it provides a more rounded and nuanced benchmark for what would be a justified valuation multiple for the company today.

Since Alkermes’ actual PE of 14x is well below its Fair Ratio of 19.87x, it suggests that the stock offers significant value at current prices.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1430 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Alkermes Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let's introduce you to Narratives. A Narrative is simply your story or thesis about a company, combining your expectations for future revenue, earnings and margins into a clear picture of what you think Alkermes' fair value should be.

Instead of relying solely on traditional ratios or analyst projections, Narratives allow you to connect the company’s business story and outlook to detailed, customizable financial forecasts. This approach leads directly to a fair value tailored to your view. Narratives put the numbers in the context of what’s actually happening in the business, making investment decisions more dynamic and grounded in real events.

On Simply Wall St’s Community page, millions of investors use Narratives to decide when to buy or sell by comparing their own Fair Value estimate to the current price. Narratives also update automatically when new data, earnings, or news is released, keeping your perspective current in a fast-changing market.

For example, some Alkermes Narratives reflect optimism by predicting robust top-line growth from new sleep medicine acquisitions and valuing shares at $54.00, while others are more cautious due to R&D costs or competition, resulting in a fair value closer to $30.00. Narratives let you easily adjust your assumptions, see how your story shapes the numbers, and invest with confidence.

Do you think there's more to the story for Alkermes? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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