Supernus Pharmaceuticals has been treading water for the past six months, recording a small loss of 1.6% while holding steady at $31.52. However, the stock is beating the S&P 500’s 7% decline during that period.
Is now the time to buy Supernus Pharmaceuticals, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Despite the relative momentum, we don't have much confidence in Supernus Pharmaceuticals. Here are three reasons why you should be careful with SUPN and a stock we'd rather own.
Why Do We Think Supernus Pharmaceuticals Will Underperform?
With a diverse portfolio of eight FDA-approved medications targeting neurological conditions, Supernus Pharmaceuticals (NASDAQ: SUPN) develops and markets treatments for central nervous system disorders including epilepsy, ADHD, Parkinson's disease, and migraine.
1. Revenue Growth Flatlining
Long-term growth is the most important, but within healthcare, a stretched historical view may miss new innovations or demand cycles. Supernus Pharmaceuticals’s recent performance shows its demand has slowed as its revenue was flat over the last two years. 
2. Fewer Distribution Channels Limit its Ceiling
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With just $661.8 million in revenue over the past 12 months, Supernus Pharmaceuticals is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.
3. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Supernus Pharmaceuticals’s revenue to drop by 5.6%, a decrease from its flat sales for the past two years. This projection doesn't excite us and suggests its products and services will face some demand challenges.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of Supernus Pharmaceuticals, we’ll be cheering from the sidelines. Following its recent outperformance in a weaker market environment, the stock trades at 16.8× forward price-to-earnings (or $31.52 per share). This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
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