Biogen (NASDAQ:BIIB) investors are sitting on a loss of 23% if they invested five years ago

By
Simply Wall St
Published
April 12, 2022
NasdaqGS:BIIB
Source: Shutterstock

The main aim of stock picking is to find the market-beating stocks. But every investor is virtually certain to have both over-performing and under-performing stocks. So we wouldn't blame long term Biogen Inc. (NASDAQ:BIIB) shareholders for doubting their decision to hold, with the stock down 23% over a half decade. Shareholders have had an even rougher run lately, with the share price down 13% in the last 90 days. Of course, this share price action may well have been influenced by the 8.2% decline in the broader market, throughout the period.

It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.

Check out our latest analysis for Biogen

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the five years over which the share price declined, Biogen's earnings per share (EPS) dropped by 9.0% each year. The share price decline of 5% per year isn't as bad as the EPS decline. So the market may previously have expected a drop, or else it expects the situation will improve.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
NasdaqGS:BIIB Earnings Per Share Growth April 12th 2022

This free interactive report on Biogen's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

Biogen shareholders are down 20% for the year, but the market itself is up 0.4%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 4% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 2 warning signs for Biogen that you should be aware of before investing here.

But note: Biogen may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.