Pharmamar has just signed its blackest year on the stock market since 2018. In a crisis of confidence, the bearish trickle depressed a company that in 2020 appreciated 65 percent. Still, the pharmaceutical is the best value in the market in financial profitability (ROE).
While investors typically focus on stock returns and future business projections, analysts often use other metrics to assess companies’ financial performance. Stock market and financial profitability are two different concepts.
The ratios most used to measure financial profitability is the ROE or return on equity. The usefulness of this rate is that it goes beyond the outright profit figure, by relating profits to the resources that the company has had to mobilize to obtain them.
ROE is defined as the ratio of net profit to equity. The higher it is, it means that the company is capable of generating profits with fewer resources than other companies.
It is also a way of knowing to what extent companies are capable of creating value for their shareholders.
Pharmamar, leader in profitability
According to the analyst consensus data from Finanzas.com, Pharmamar discounts a ROE profitability for 2022 of 32 percent.
With this percentage it exceeds Cie Automotive (31.09 percent) and Laboratorios Rovi (29.64 percent). In addition, it marks distances with a heavyweight such as Inditex (24.7 percent).
Likewise, it leaves other comparable companies in the pharmaceutical sector far behind. For example, Grifols, which has an ROE of 11.91 percent, or Almirall (4.57 percent).
The comparison between rates allows us to see why financial analysts carefully analyze this variable to build their portfolios.
For every euro invested in your own business, Pharmamar generates a return of 32 percent, while Grifols only reaches 11 percent and Almirall does not even reach 5 percent.
For the Galician biopharmaceutical it is important, to the extent that in recent years it has discounted a negative ROE.
In the shadow of Aplidin
The positive jump came shortly before the pandemic, when the group began to accelerate its earnings per share. And in fact, it ended 2020 with a profit of 131 million, thanks to royalties from Zepzelca in the United States.
The rise in profits, which in the end is the factor that drives ROE profitability, put in value the results of Pharmamar. That they are on the right track is something that the market does not question.
The problem that weighed on the market value is the high expectations that Aplidin generated as a treatment for the coronavirus, and the delay in the marketing horizon until May 2022, according to Finanzas.com.
Even if Pharmamar is a security dominated by the news, showing a positive ROE profitability is an important factor when it comes to attracting investors, especially if they are foreign.
At a minimum, the ROE has to be positive and higher than the opportunity cost or profitability that can be obtained with other alternative investments.
60% upside potential
Profitability expectations discounted Pharmamar They live up to the 60 percent upside potential calculated by analyst consensus.
To improve its stock market appearance and enter a lateral range, the Galician biopharmaceutical needs a 15 percent bounce, until it conquers the resistance of 63 euros.
For now, it has managed to mark a weekly closing above 56.6 euros. In the opinion of Diego morin, this requirement is important to deploy the attack at 60 euros.
But the future of the rebound will depend on the news that transcends about Aplidin, which has a new opportunity after the explosion of infections by the omicron variant.
The profile of the patients undergoing the final trial is very specific. These are moderately affected patients who have required hospital admission, but without the need to enter intensive care units.