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The time to buy good companies is when they are temporarily out of favor with the market, and are at the low end of their PE range. WPI was out of favor this spring, because the market lumped it in with the other generic drug companies, and sold them all off. The wholesalers are consolidating, and thereby gaining the muscle to force price cuts on the small generic drug makers. This is a classic example of what happens to commodity manufacturers. It's also an example of how the market if often unable to distinguish individual stocks in a group. WPI is not a commodity manufacturer. It makes niche produsts that noone else is making. It's margins are much higher than the other generics. Therefore, it isn't subject to the same pricing pressures. When the market figured this out, the stock doubled from the low in April to now.
When WPI is out of favor, it sells at a PE of around 15. It did this in early 1994, mid 1996, and April 1997. Those are the times to buy. It will be available at that PE again, if you are patient. You may have to wait a year or two.
Today, the stock is at the very high end of it's PE range. I got in at 35 in May. It's a great company, great management, excellent balance sheet, spectacular EPS growth record, but overvalued. |
