Over the last six months, Jazz Pharmaceuticals’s shares have sunk to $107, producing a disappointing 11% loss - a stark contrast to the S&P 500’s 5.3% gain. This was partly due to its softer quarterly results and might have investors contemplating their next move.

Is there a buying opportunity in Jazz Pharmaceuticals, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is Jazz Pharmaceuticals Not Exciting?

Even with the cheaper entry price, we're swiping left on Jazz Pharmaceuticals for now. Here are three reasons why there are better opportunities than JAZZ and a stock we'd rather own.

1. Lackluster Revenue Growth

Long-term growth is the most important, but within healthcare, a stretched historical view may miss new innovations or demand cycles. Jazz Pharmaceuticals’s recent performance shows its demand has slowed as its annualized revenue growth of 4.3% over the last two years was below its five-year trend.

2. Shrinking Adjusted Operating Margin

Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.

Analyzing the trend in its profitability, Jazz Pharmaceuticals’s adjusted operating margin decreased by 6.7 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 39.6%.

3. Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Jazz Pharmaceuticals historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.3%, somewhat low compared to the best healthcare companies that consistently pump out 20%+.

Final Judgment

Jazz Pharmaceuticals isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 4.6× forward P/E (or $107 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward the most entrenched endpoint security platform on the market.

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