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Could this FTSE 100 stock double your money again?

Investors who bought into the Hikma Pharmaceuticals (LSE: HIK) turnaround story at the lows early last year doubled their money before the year was out. The shares have since retreated from their peak, and are off another few percentage points today after the FTSE 100 firm’s annual results.

However, could the stock be set for another big upsurge, alongside small-cap peer Alliance Pharma (LSE: APH), whose shares have seen an even bigger pullback since soaring last year?

Growth across the board

Hikma posted strong results today. These followed leadership changes and a major overhaul of the business, including the consolidation of its Generics manufacturing facilities and US distribution facilities.

Group revenue increased 7% to $2.1bn, with core operating profit up 19% to $460m, and core earnings per share (EPS) rising 31% to $1.378 (104.4p at current exchange rates). The board lifted the dividend 12% to $0.38 (28.8p).

All three of its businesses — Injectables, Generics and Branded — increased their revenues and profits. And there was growth across all three of its geographical regions: US (62% of group revenue); Middle East and North Africa (32%); and Europe and Rest of World (6%).

Very optimistic

Hikma’s shares are trading at 1,580p, as I’m writing, which is 22% below last year’s high of 2,025p. The trailing price-to-earnings (P/E) ratio is 15.1 and the dividend yield is 1.8%. While the yield is admittedly skinny, the P/E is reasonable for a blue-chip stock in the defensive pharma sector.

Furthermore, Hikma’s transformational changes and strong performance in 2018 have new chief executive Siggi Olafsson “confident that we can build on this momentum going forward,” and executive chairman Said Darwazah “very optimistic for the future.”

I can’t see Hikma’s shares doubling again in the space of a year, but with the business back on track, the longer-term outlook appears promising. I rate the stock a ‘buy’.

Unmerited de-rating

Alliance Pharma has a growing portfolio of pharmaceutical and consumer healthcare products it owns or licenses the rights to. It sells these products in more than 100 countries.

Its shares are trading at 65p, down 36% from last year’s high of 102p. I’m at a loss to understand quite why the stock has slumped so far. A £0.7m step-up in its future annual cost base, due to a raft of regulatory and accounting changes, hardly seems sufficient to merit such a de-rating. There was a hefty share sale by company founder (and now a non-executive director) John Dawson in November, but the shares had already completed much of their decline by that date.

Further growth ahead

In a trading update in January, ahead of annual results scheduled for release a week on Tuesday, Alliance said 2018 revenue was £124m — up 22% on the prior year, or up 4% excluding acquisitions. It also said “underlying profit before tax is expected to be in line with [unspecified] expectations” and that “free cash flow for the year was slightly stronger than anticipated at approximately £16.1m.”

A research note dated November on its corporate website has underlying profit before tax of £28.9m, free cash flow of £15.5m, underlying EPS of 4.66p (10% ahead of 2017), and a dividend of 1.46p (also up 10%). At the current share price, the P/E is 13.9 and the dividend yield is 2.25%.

I see the shares as very buyable, with the company having said in January: “We look forward to delivering further growth in the year ahead.”

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Alliance Pharma and Hikma Pharmaceuticals. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.