Is Inhibitex the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Inhibitex (Nasdaq: INHX  ) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Inhibitex.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 20.3% Pass
  1-Year Revenue Growth > 12% 14.1% Pass
Margins Gross Margin > 35% 100% Pass
  Net Margin > 15% NM NM
Balance Sheet Debt to Equity < 50% 0.8% Pass
  Current Ratio > 1.3 9.42 Pass
Opportunities Return on Equity > 15% (72%) Fail
Valuation Normalized P/E < 20 NM NM
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
       
  Total Score   5 out of 8

Source: S&P Capital IQ. NM = not meaningful due to negative earnings that substantially exceeded total revenue. Total score = number of passes.

With a score of 5, Inhibitex actually does pretty well for a small company. The young biotech has shot up recently on promising news for its main drug.

As with most small biotechs, Inhibitex's success or failure largely rests on a single drug. For Inhibitex, that drug is INX-189, a treatment for hepatitis C. That's a crowded space, with Gilead Sciences (Nasdaq: GILD  ) and Idenix Pharmaceuticals (Nasdaq: IDIX  ) having drugs in development. Moreover, Pharmasset (Nasdaq: VRUS  ) has partnered with giants Bristol-Myers Squibb (NYSE: BMY  ) and Johnson & Johnson (NYSE: JNJ  ) .

But unlike many biotechs, Inhibitex has gotten some unquestionably positive news lately. The company announced that INX-189 turned in unexpectedly good trial results. Although Vertex Pharmaceuticals (Nasdaq: VRTX  ) arguably has the lead in the space, Inhibitex's treatment would be a big advantage over Vertex's Incivek, which still requires patients to take interferon in conjunction with the drug.

The key to remember, though, is that INX-189 is only in phase 2 trials right now. It still has a long way to go before FDA approval even comes onto the table. Investors who are already treating it like a perfect stock are getting ahead of themselves, but there's no denying that Inhibitex has a great deal of promise.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate the best investments from the rest.

Click here to add Inhibitex to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Finding the perfect stock is only one piece of a successful investment strategy. Get the big picture by taking a look at our "13 Steps to Investing Foolishly."

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Vertex Pharmaceuticals, Johnson & Johnson, and Gilead Sciences, as well as creating a diagonal call position in Johnson & Johnson. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 08, 2011, at 10:39 PM, youtwitface wrote:

    The author states "Inhibitex's all-oral treatment would be a big advantage over Vertex's injectable Incivek." Incivek, used in combination with ribavirin and interferon (not oral) is a protease inhibitor which is also being tested in all-oral combination drug trials. Anything can happen in this business and it usually does.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1585611, ~/Articles/ArticleHandler.aspx, 9/22/2014 6:20:29 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement