Biogen Idec Inc. (BIIB): What Goes up Must Come Down

Here is an easier way is to compare Biogen Idec Inc. (NASDAQ:BIIB) with the three other biotech stocks that hit their 52-week highs in March/April 2013 – Amgen, Inc. (NASDAQ:AMGN), Gilead Sciences, Inc. (NASDAQ:GILD), and Celgene Corporation (NASDAQ:CELG). Here is a chart containing data relevant to the argument. (Source: Yahoo! Finance)

Biogen Idec Inc. (NASDAQ:BIIB)’s profit and operating margins are comparable with the other three companies. However, its diluted EPS ($5.76 per share) is the highest, and so is its book value per share ($29.42). Price-to-book ratio compares favorably with Gilead Sciences, Inc. (NASDAQ:GILD) and Celgene Corporation (NASDAQ:CELG), but is higher as compared with Amgen, Inc. (NASDAQ:AMGN). Biogen is also the least leveraged company among the four.

Biogen is no doubt a fundamentally strong company. However, when it comes to valuations, it is important to consider current and forward price-to-earnings (P/E) ratios. Biogen’s P/E ratio, although lower than Celgene Corporation (NASDAQ:CELG), is pretty high at 33.54, and so is its forward P/E (20.06) – actually the highest among the four.

PEG ratio, a valuation metric based on price, EPS, and expected growth, of 1.39 also suggests that Biogen is overvalued at this price. However, the PEG ratio of the other three is also on the higher side.

In my opinion Biogen Idec Inc. (NASDAQ:BIIB) has had a dream run. Biogen does not pay a dividend, meaning that appreciation is all that investors can expect. Holding or buying Biogen at this point makes sense only for investors who have an extremely long investment horizon. If I was sitting on a good profit, I would rather sell now and wait for the stock to come down before I consider buying again.

Shas Dey has no position in any stocks mentioned. The Motley Fool recommends Gilead Sciences.