In a sliding market, Gilead Sciences has defied the odds, trading up to $106.42 per share. Its 24% gain since October 2024 has outpaced the S&P 500’s 6.9% drop. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy Gilead Sciences, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
We’re happy investors have made money, but we're cautious about Gilead Sciences. Here are three reasons why there are better opportunities than GILD and a stock we'd rather own.
Why Is Gilead Sciences Not Exciting?
From its groundbreaking work in developing the first single-tablet regimens for HIV treatment, Gilead Sciences (NASDAQ: GILD) develops and markets innovative medicines for life-threatening diseases including HIV, viral hepatitis, COVID-19, and cancer.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Gilead Sciences grew its sales at a mediocre 5.1% compounded annual growth rate. This was below our standard for the healthcare sector. 
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.
Looking at the trend in its profitability, Gilead Sciences’s adjusted operating margin decreased by 15 percentage points over the last two 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 29.6%.
3. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Gilead Sciences, its EPS declined by 5.6% annually over the last five years while its revenue grew by 5.1%. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Gilead Sciences’s business quality ultimately falls short of our standards. With its shares topping the market in recent months, the stock trades at 13.6× forward price-to-earnings (or $106.42 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at one of our top software and edge computing picks.
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