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American BioPharmaceutical Company Vertex Pharmaceuticals Stock Underperforms

Vertex Pharmaceuticals inched 0.79% higher to $214.35 Thursday. This proved to be an all-around great trading session for the Stock market, with the S&P 500 Index SPX rising 1.22% to 4,112.50 and the Dow Jones Industrial Average DJIA rising 1.29% to 34,021.45.

Vertex Pharmaceuticals closed $91.73 short of its 52-week high ($306.08), which the Company achieved on July 7th.The Stock Underperforms when compared to some of its competitors Thursday, as Johnson & Johnson JNJ rose 1.05% to $169.96, Merck & Co. Inc. MRK rose 0.88% to $78.69, and AbbVie Inc. ABBV rose 1.43% to $116.60. Trading volume (1.1 M) remained 568,636 below its 50-day average volume of 1.6 M.

Vertex Pharmaceuticals is undervalued at current levels of $215. The company stock is mere 6% off the March 2020 bottom compared to the S&P which moved 85%. The Stock Underperforms the broader markets due to multiple factors. In mid-October 2020, the company discontinued VX-814, a drug that was being investigated for a potential treatment for alpha-1 antitrypsin deficiency. This development caused a large 20% hit to the stock in a single trading session.

The company’s net margins on a GAAP basis have been volatile rising from 11% in 2017 to 69% in 2018 and dropping to 44% in 2020. The surge in 2018 can be attributed to a tax benefit of over $1.5 billion from the release of the company’s valuation allowance. This clubbed with a 2% growth in total shares outstanding due to share issuance has meant that the company’s earnings grew 27% from $8.24 in 2018 to $10.44 in 2020 on a per-share basis.

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