Can Vertex Stock Bounce Back After 17% Drop and Promising Gene Therapy Results?

Thinking About Vertex Pharmaceuticals Stock? Here’s What You Need to Know

If you’ve been watching Vertex Pharmaceuticals lately, you’re definitely not alone. With the stock trading at $395.12, investors are wondering if the recent ups and downs signal an opportunity or a warning sign. Over the past month, Vertex has slipped around 17%. This follows multi-year returns that would make most biotechs envious. In fact, despite this recent dip, Vertex has delivered an impressive 40% total return over the last three years and more than 46% over the past five years.

Why the recent pullback? Some of it stems from shifting market sentiment in the broader pharmaceutical sector, especially as drug pricing debates and new competition raise the stakes. However, Vertex is also a company with robust fundamentals, ranging from strong revenue growth (up 9% annually) to even faster net income growth (up 13% annually). In addition, the stock is trading at a nearly 50% discount to its intrinsic value. For this reason, it’s fair to wonder if the market is mispricing this leader in cystic fibrosis treatments.

To cut through the noise, I examined Vertex with a strict valuation framework. Of six classic value checks, the company is undervalued on four, which gives Vertex a valuation score of 4. That’s promising, but context is key, and not all valuation tools are created equal. Next, let’s dig into the numbers and methods behind that score. After that, I’ll share one approach savvy investors use to see company value even more clearly.

Vertex Pharmaceuticals delivered -17.9% returns over the last year. See how this stacks up to the rest of the Biotechs industry.

Approach 1: Vertex Pharmaceuticals Cash Flows

The Discounted Cash Flow (DCF) model is a finance tool that estimates a company’s worth by forecasting its future cash flows and discounting them back to today’s value. In short, it explains what those projected future billions are truly worth in present terms.

Vertex Pharmaceuticals currently generates $3.46 billion in annual Free Cash Flow. That number is expected to climb, with analyst projections reaching $10.23 billion by 2035. These projections reflect a steady growth trajectory in Free Cash Flow each year over the coming decade.

Based on these forecasts, the DCF model estimates Vertex’s intrinsic fair value at $788.31 per share. When compared to the current share price of $395.12, the stock is trading at a 49.9% discount according to its long-term cash flow outlook. In other words, the model indicates the market may be undervaluing Vertex at present.

Result: UNDERVALUED

Our DCF analysis suggests Vertex Pharmaceuticals is undervalued by 49.9%. Track this in your watchlist or portfolio, or discover more undervalued stocks based on DCF analysis.

Approach 2: Vertex Pharmaceuticals Price vs Earnings

The price-to-earnings (PE) ratio is one of the best tools for valuing mature, profitable companies like Vertex Pharmaceuticals. Since it compares a company’s stock price with its earnings, it captures both current profitability and what investors are willing to pay for that performance. Companies with faster growth or lower risks often command a higher PE ratio, while slower-growing or riskier firms tend to trade at lower multiples.

Vertex’s current PE ratio is 27.8x. That is well above the biotechnology industry average of 15.1x, but below the average among its closest peers at 40.0x. On its own, this suggests that the market recognizes Vertex’s strong financials and growth but is not giving it the same premium as some competitors.

To get more precise, we look at the Fair Ratio, a proprietary metric that accounts for Vertex’s specific profile, including growth rates, margins, and risk factors. Vertex’s Fair Ratio is calculated to be 27.6x. That is almost identical to its actual PE, indicating the current price is aligning closely with its true underlying value by this measure.

Result: ABOUT RIGHT

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

Upgrade Your Decision Making: Choose your Vertex Pharmaceuticals Narrative

While valuation ratios and cash flow models are helpful, Narratives offer a smarter and more personal way to invest. A Narrative is simply your story about a company, connecting how you see its future with your forecast of its revenues, margins, and fair value. Narratives bridge the gap between numbers and real-world developments by letting you combine facts, assumptions, and perspective all in one place. This approach helps you clearly see why you think a stock is worth a certain price.

On Simply Wall St, Narratives are easy to build and compare. Millions of investors use them to evaluate when a stock looks undervalued or overvalued by checking if Fair Value is above or below the current Price. The real power of Narratives is their ability to keep up with new information. Automatic updates reflect the latest news and earnings, meaning your view always stays relevant.

For example, some investors believe Vertex could be worth as much as $624 based on breakthrough gene editing and rapid pipeline progress. Others see a fair value as low as $330 if challenges in competition and regulatory risk weigh on future growth.

Do you think there's more to the story for Vertex Pharmaceuticals? Create your own Narrative to let the Community know!

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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