Here's Why Vertex Pharmaceuticals (NASDAQ:VRTX) Has Caught The Eye Of Investors

·4 min read

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Vertex Pharmaceuticals (NASDAQ:VRTX), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

View our latest analysis for Vertex Pharmaceuticals

Vertex Pharmaceuticals' Earnings Per Share Are Growing

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That makes EPS growth an attractive quality for any company. We can see that in the last three years Vertex Pharmaceuticals grew its EPS by 13% per year. That's a good rate of growth, if it can be sustained.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. On the one hand, Vertex Pharmaceuticals' EBIT margins fell over the last year, but on the other hand, revenue grew. So it seems the future may hold further growth, especially if EBIT margins can remain steady.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

earnings-and-revenue-history
earnings-and-revenue-history

Fortunately, we've got access to analyst forecasts of Vertex Pharmaceuticals' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Vertex Pharmaceuticals Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

One shining light for Vertex Pharmaceuticals is the serious outlay one insider has made to buy shares, in the last year. In other words, the CEO, President & Director, Reshma Kewalramani, acquired US$2.0m worth of shares over the previous 12 months at an average price of around US$196. Big insider buys like that are a rarity and should prompt discussion on the merits of the business.

Along with the insider buying, another encouraging sign for Vertex Pharmaceuticals is that insiders, as a group, have a considerable shareholding. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$147m. This comes in at 0.2% of shares in the company, which is a fair amount of a business of this size. This still shows shareholders there is a degree of alignment between management and themselves.

Does Vertex Pharmaceuticals Deserve A Spot On Your Watchlist?

As previously touched on, Vertex Pharmaceuticals is a growing business, which is encouraging. In addition, insiders have been busy adding to their sizeable holdings in the company. That makes the company a prime candidate for your watchlist - and arguably a research priority. It is worth noting though that we have found 1 warning sign for Vertex Pharmaceuticals that you need to take into consideration.

Keen growth investors love to see insider buying. Thankfully, Vertex Pharmaceuticals isn't the only one. You can see a a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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