I think that bubbles are hidden in the Nasdaq 100. You may want to read why in this article. The proof of a bubble is a divergence between the price and fundamental metrics. This article is a quick evaluation of VRTX (Vertex Pharmaceuticals Inc.) from this point of view. My thesis is that VRTX seems overvalued in the NASDAQ 100 universe. Moreover, it is trending down for several months. It is typically a stock that I would avoid.
I will use ten metrics. They are formulas with fundamental factors and weights. The score is between 0 (the worst) and 100 (the best).
Here are the metrics:
Balanced blend of growth ratios
Balanced blend of valuation ratios
Blend of financial ratios, margins, returns on capital
Inspired by Warren Buffett
// Benjamin Graham
// Joel Greenblatt
// Peter Lynch
// William O'Neil
// Joseph Piotroski
// Martin Zweig
The metrics inspired by famous investors are an interpretation of publications. No claim is made that it models accurately their strategies.
The next table reports the scores of VRTX. You can read them as fundamental relative strength indicators in the NASDAQ 100 Universe.
Average Score: 15.4 / 100
The next three charts show the evolution of the basic scores for twelve months (in green), compared with the price (in red).
The Basic Growth score fell from 70 to 8 in one year.
The Basic Value score fell from 10 to 1 in the same period.
The Basic Quality score fell from 70 to 6.
All scores are relative to the NASDAQ 100 universe. The last chart shows the share price (in red) compared with the NASDAQ 100 Index (in blue):
The stock price is up by about 40% in one year.
Here are the facts:
- VRTX has outperformed the NASDAQ 100 and QQQ by about 15% last twelve months.
- The scores of the three basic fundamental metrics (growth, value and financial quality) have gone down sharply in the same period.
- Using the ten fundamental metrics in equal weight, the average relative score of VRTX in the NASDAQ 100 is far under the mean: 15.4/100. Ten metrics following different methodologies should give us an objective point of view on data.
There is a divergence between fundamental metrics and the price. It suggests that this stock is overvalued by the market relative to the NASDAQ 100 universe. However, it is not currently in "bubble mode," The price is already on a downtrend for more than 4 months. VRTX is a stock that I would not buy or keep now. I do not recommend to short it (except for day-traders), because it may surge on speculations and news.
Important note: The metrics used here are standard ranks of Portfolio123. Formulas may be subject to intellectual property rights and cannot be published here. If you want to see them, verify calculations, or use them with other stocks, click here for more info. Charts are courtesy of Portfolio123.
The next articles of this series will evaluate other stocks using the same process. Click on "Follow" if you don't want to miss them.