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Gilead Sciences (NSDQ:GILD) has underperformed the market with its stock price down almost 25% compared to a 10.33% gain in Nasdaq Composite (INDX:COMPX) and 14.60% gain of Dow Jones Industrial Average (INDX:INDU). Gilead and Amgen (NSDQ:AMGN) have had a very tough year, so it is interesting to know if now is the time to invest in GILD stock, not from a bottom fishing point of investing, which is often too risky, but on some solid financial and fundamentals arguments.

Strong Fundamentals

The 4-year increase in total revenues, net income and free cash flow, are very positive and bullish for Gilead stock. Gilead's revenues grew by 31.13% in FY 2015, compared to FY 2014 to $32.64B. Net income grew 49.64% to $18.11B. On a quarterly basis, Gilead's revenues fell 3.55% in Sep'16 as compared to Jun'16 to $7.50B. Net income fell 4.78% to $3.33B. Net cash provided by operating activities has risen 58.60% in FY 2015 to $20.329 billion compared to $12.818 billion in the previous year.

Free cash flow has also shown an increase of 59.70% to $19.582 billion in 2015 compared to $12.261 billion in 2014. The EPS has also shown a consistent 5-year growth, diluted EPS in 2015 came in at $11.91 up 62% from $7.35 in the previous year. On a quarterly basis, the diluted earnings per share shows a steady trend ranging from $2.53 in Q1 to $2.49 during Q3.

What about a comparative analysis of the stock to the Biotechnology industry and Healthcare sector?

Sources: Money MSN,reuters.com

We can clearly see that Gilead stock is not expensive, on the contrary, it seems to be undervalued compared to the Biotechnology industry and the Healthcare sector. It has much better profit margins and is financially strong, although high debt to equity ratio is of major concern. And I like the consistent growth in sales and earnings per share as key drivers of profitability and higher stock price.

Will The US Government Act On Drug Pricing

A very alarming factor to consider is the possibility of the new US government bringing down drugs prices and medicines, as this will be a major challenge to profitability. In a recent tweet, President-elect Mr. Trump mentioned that his intentions are to lower the drugs prices.  The pharmaceutical stocks like Pfizer (NYSE:PFE) took a dive after that tweet. It is important to clarify that as of now it is not a fact but a mere intention. It could well remain an intention. In case there is an action about lowering drugs and medicine prices, then this clearly is not a good thing for Gilead shareholders. There is also a major discussion on the reform of healthcare sector, but still, we will have to wait and see if plans will become actions.

Technical Analysis Seems Bullish

There has been a strong base support level around $70 per share, plus the stock price has closed above daily 50 moving average currently at 73.91. MACD is bullish, and ADX indicator shows that +DI has crossed above –DI, which is also very bullish. The accumulation/distribution line shows a rising trend and this is required for an up move. Money Flow Index is also rising showing increasing buying pressure from current levels. And the stock has formed a triple bottom at the region $70-$72.

Conclusion

Gilead stock seems well poised for an up move from current levels of about $75.5 per share. It is a very profitable company with an improved technical analysis picture and seems undervalued relatively compared to its industry and sector. It has a current beta of 1.20 which means it is more volatile stock than the general stock market, but could well provide a good risk-adjusted return in 2017.