Does Alexion Pharmaceuticals Inc's (NASDAQ:ALXN) March Stock Price Reflect Its Future Growth?

Alexion Pharmaceuticals Inc (NASDAQ:ALXN) closed yesterday at $122.68, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s take a look at some key metrics to determine whether there's any value here for current and potential future investors. See our latest analysis for Alexion Pharmaceuticals

Can we expect ALXN to keep growing?

Alexion Pharmaceuticals's growth potential is very attractive. The consensus forecast from 20 analysts is extremely bullish with earnings forecasted to rise significantly from today's level of $1.98 to $7.584 over the next three years. This indicates an estimated earnings growth rate of 25.73% per year, on average, which indicates an exceedlingly positive future in the near term.

Is ALXN available at a good price after accounting for its growth?

Alexion Pharmaceuticals is trading at price-to-earnings (PE) ratio of 61.96x, this also tells us the stock is overvalued based on current earnings compared to the biotechs industry average of 28.79x , and overvalued compared to the US market average ratio of 18.7x .

We already know that ALXN appears to be overvalued when compared to its industry average. However, to properly examine the value of a high-growth stock such as Alexion Pharmaceuticals, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 61.96x and expected year-on-year earnings growth of 25.73% give Alexion Pharmaceuticals a quite high PEG ratio of 2.41x. This means that, when we account for Alexion Pharmaceuticals's growth, the stock can be viewed as overvalued , based on its fundamentals.

What this means for you:

ALXN's current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you're a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

1. Financial Health: Is ALXN’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
2. Past Track Record: Has ALXN been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of ALXN's historicals for more clarity.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.