Investment Alert: Buy Royalty Pharma (RPRX) Under $33/share
Disclaimer: Investment Alerts have a medium to long-term time horizon. These do not constitute financial advice and you should contact a financial advisor before deciding whether it is appropriate for your individual circumstances.
How would you like a cut of those lucrative pharmaceutical royalties that famously mint money? It turns out that now you can because a company called Royalty Pharma is a buyer of biopharmaceutical royalties and operates with massive gross margins north of 82%.
When we investigated the company, we stumbled across an interesting event this past quarter and we uncovered some very interesting insider activity. Let’s dive in.
- The stock price of RPRX has been performing poorly and is currently near all-time lows.
- However, the company’s CEO has recently purchased $10 million worth of shares, which suggests that he is bullish on the stock.
- Analysts also have a bullish outlook on the stock, with a consensus price target of $51.58, which is 60% higher than the current price.
- Royalty Pharma has strong financials, with a gross margin of 82% and revenue growth of 21% in the most recent quarter.
- The company has some debt, but it also has a strong cash position.
- Overall, RPRX is a compelling buy, especially given the current price.
Why Does the CEO Know?
Let’s get the ugly part of this story out of the way first. The price action has been truly awful. Indeed RPRX share price currently sits near all-time lows.
Usually poor price behavior is a reason to avoid a stock but in this case there might be an opportunity and the person who is signaling that is none other than the company’s CEO.
On June 13, CEO Pablo Legoretta purchased close to $3,000,000 worth of RPRX shares which follows last month’s disclosure that he bought about $7 million worth of stock for a total of close to $10 million.
If ever there was a vote of confidence in a stock that is it. So is he right?
What Analysts Say
The company’s CEO isn’t the only one who appears bullish on the stock. Analysts have a consensus price target that is almost 60% higher at $51.58. And it’s no wonder why when examining the financials.
The gross margin last quarter came in at 82%. To give you an example of how good that looks on paper, $684 million of revenues produced $539 million of operating income and $340 million of net income. In other words, this is a cash-producing machine.
Another tailwind in favor of the firm is that revenues popped by 21% last quarter. History says sequential quarterly growth isn’t to be expected but rather when a new plateau is reached, it is sustained.
Is RPRX a Buy?
The model naturally requires debt and RPRX has its fair share, $6.1 billion to be exact. It’s also got almost $2 billion in cash and, in light of the business model, we think this ratio is quite reasonable.
When you combine a quarterly revenue pop with sky high gross margins, a CEO demonstrating massive conviction with a $10 million purchase of shares, and analysts placing upside target price that is almost 60% higher, you end up with a compelling buy. Especially so given that share prices are near 5 year lows.