Should I Buy Shire plc?

Harvey Jones has an overwhelming desire to buy Shire plc (LON: SHP).

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’m out shopping for shares again. Should I add Shire (LSE: SHP) to my wish list?

Shire on fire

Shire isn’t like other pharmaceutical stocks. At least, it isn’t like those comfy, familiar names AstraZeneca and GlaxoSmithKline. For a start, it’s much smaller, with a market cap of just £15 billion, against AZN’s £40 billion and Glaxo’s £80 billion. And while the big two are known for their juicy yields, 5.3% and 4.5% respectively, Shire gives you just 0.4%. But investors aren’t complaining, because they want growth, and that’s what they’ve got.

Shire is up a heady 58% over the past 12 months, against AZN’s 14% and Glaxo’s 19%. Shire has enjoyed a barnstorming five years, growing 240% in that time. It shares have constantly topped their all-time highs in recent months to hit £27.79, helped by October’s expectation-bashing Q3 results, which included a 12% rise in revenues to $1,237 billion. That was enough to bump up the share price by 7% on the day.

R&D & M&A

Shire has also trimmed its research and development spending by squeezing its three divisions into a single business, and further pleased markets by forecasting earnings growth in the “mid-to-high teens” across full-year 2013. Shire can boast healthy revenues, earnings, cash flow and an exciting product pipeline. It is also targeting focused M&A activity, to further boost growth. The management team has had a long tenure at Shire, and is shows.

Analysts have been excited by recent findings that Shire’s Vyvanse drug, currently used to treat attention deficit hyperactivity disorder, is also effective for binge-eating disorder (BED). Shire is now applying to the US Food and Drug Administration for approval to treat patients with BED. This is a completely new market, and a potentially lucrative one.

A patently strong investment

Pioneering new treatments is a risky business, however, and drugs can quickly fall out of favour. Sales of diabetic foot-ulcer treatment Dermagraft, for example, fell 29%, and several other products saw sharp falls in sales. But Shire’s focus on specialist areas and niche diseases has served it well, protecting it from patent expiries and drug pricing pressures in cash-strapped Europe.

Shire’s strong growth prospects means it defies standard valuation metrics, which would normally deem it expensive at 34 times earnings. With forecast earnings per share growth of a whopping 76% this year and 20% in 2014, I reckon that’s a price worth paying.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Harvey owns shares in GlaxoSmithKline. The Motley Fool has recommended shares in GlaxoSmithKline.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »