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Gilead Sciences, Inc. Could Be Taking A Break Before Even More Upside

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Gilead Sciences, Inc. Could Be Taking A Break Before Even More Upside
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Gilead Sciences, Inc. (NASDAQ: GILD) stock has been on a rocket ship trajectory ever since breaking out of its four-year basing pattern in 2012. Can the bulls really expect more upside after a brief correction?

Gilead Sciences shares have rewarded those who stayed patient with the stock from 2008–2012 (when the stock when sideways to down the entire time) with a run for the ages to the upside. Once the stock closed above $22 per share in early 2012, it was off to the races.

Since then, the stock has rallied 300 percent to the recent peak ($110) with only a couple of short-term downside shake-outs. The big question now is whether the company's drug pipeline and growth prospects warrant further gains for the longs. Let's take a look at both sides of that argument.

Related Link: Is Merck & Co., Inc. A Leader In A Red Hot Market?

The Bullish Argument

  • The company makes huge gross (56.15 percent) and net (42.8 percent) profit margins
  • Those margins translate into a levered free cash flow of $5.85 billion annually
  • The company has more than $8 billion in cash reserves
  • Current ratio of 2.49
  • Debt-to-equity ratio of 57.73 percent
  • The company's valuation is still cheap based on its price-to-earnings ratio of around 12 (based on 2015 estimates), especially compared to revenue growth estimates of 14.4 percent for 2015 and EPS growth estimates of 17 percent for next year
  • The stock's technicals are extremely bullish overall despite the short-term overbought condition that built up; that is now being alleviated with the current consolidation

The Bears Are Quick To Point Out...

  • The company is not cheap at all based on the price-to-sales ratio of 9.18, its price-to-book of 10.02 and market capitalization that eclipses the enterprise value.
  • The stock needs to pull back to at least $97.50 and preferably to around $85 to truly work off the long-term overbought condition on the chart.

The Technical Take

Technicians would caution that while it may be appealing to try to call a top in these types of rocket ship stocks, it can also be very hazardous to one's financial health. They note another pullback (one was just attempted a few sessions ago) to around $97.50 would be a nice opportunity for the bulls to enter new long positions. However, betting on that pullback occurring as the stock and the broader market are still in indisputable bull market conditions is just not the highest percentage play.

Profit-taking by existing longs is a different story -- do so enough so that you can sleep at night, they note.

There seems to be a lot going right for the bulls and their argument at this point.

Stock chart: 
Stock chart

Posted-In: Long Ideas Technicals Top Stories Trading Ideas Best of Benzinga

 

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