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Amgen, Inc. Showing More Upside Potential

Amgen, Inc. Showing More Upside Potential
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Amgen, Inc. (NASDAQ: AMGN) stock has been partaking in the very strong trading action of the broader biotechnology sector over the last several years, but in the last few weeks in particular. How much is too much?

Amgen stock has rallied from the 2008 low of $39.16 to just under $140 per share recently, a massive gain for such a large biotechnology company. As with all big multi-year gainers like this, at some point shareholders have to ask the hard questions about future growth in revenues and earnings, and whether that growth justifies a continued hold of Amgen stock.

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

The Bullish Argument For Amgen

The bulls love the company's cash flows, balance sheet and obvious bullish technicals. Here's a breakdown of the particulars of their thesis:

  • Amgen sports an enterprise value that trumps the market capitalization of the company
  • Its gross profit margins (32.78 percent) and net profit margins (25.74 percent) translate into steady positive levered free cash flow of $4.86 billion
  • It has cash reserves of more than $26 billion
  • It sports a current ratio of 4.36
  • The company has a very bullish price chart, despite being due for a short-term consolidation/pullback

The Bearish Argument Against Amgen

Amgen's valuation is a problem for the bears:

  • The price-to-book comes in at 4.28
  • The price-to-sales comes in at 5.36
  • The “cheap on the surface” P/E of 15 (based on 2015 estimates) is problematic when compared to sales growth estimates of 2.5 percent and EPS growth estimates of 6.9 percent
  • The company sports a debt-to-equity ratio of 136.69 percent, which in and of itself isn't bad given how low interest rates are, but is still high versus most biotechnology companies.
  • The stock is still closer to overbought than neutral or oversold, and seems to have plenty of room to correct lower before the first support even comes into play at $130.01 (versus current prices around $139).

Technically Speaking

Technicians love Amgen's long-term chart status as the stock is supported by multiple layers of horizontal lines and long-term trend lines. However, they do note that after the recent run up to overbought levels that a consolidation down to the low to mid-$130s would actually be healthy for the stock.

Stock chart: 
Stock chart

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