Biotech investors have high frustrations for Gilead Sciences (GILD). Cash flow keeps flowing every quarter but the share price keeps falling. Is GILD a value trap?
Gilead’s main products are HCV and non-HCV. The latter includes HIV and Hepatitis-B treatment. Markets worry over the company’s HCV sales, which fell 40% year-over-year. Investors who bought the stock and are holding at a loss have a few options. Assuming the prospects will improve and sales get better, selling out of the money calls and collecting the dividend could pay off. Rumors persist that GILD will make an acquisition to bolster and diversify its revenue base. Averaging-down on the stock may work out but only if the stock eventually rebounds.
As revenue projections from analysts fall, Gilead’s stock will keep falling far enough that it trades at a discount to its potential future value. Management is struggling right now in growing revenues in all of its geographically diverse markets. Once it figures how to overcome those operating headwinds, the downtrend in Gilead will reverse.
Takeaway
Gilead Sciences looks like a value trap for now. But patient investors will benefit if the company’s management stabilizes the quarterly drop in revenue.
