This company was riding a Covid-19 wave for a few years which carried its valuation to unsustainable levels. Even after the recent pull back the valuation is difficult to justify.
There are a number of headwinds:
- The pandemic resulted in demand being pulled forward. The impact of customer inventory destocking now continues to weigh on the company's Proprietary Products segment.
- The company has made the decision to not participate in the next-generation CGM device development going forward, as it cannot achieve its financial thresholds. One of its CGM customers has already started to exit, while the other has informed West Pharmaceutical of its intention to exit in mid-2026.
- The company expects a $75 million headwind to its 2025 net sales guidance based on current foreign exchange rates.
- The company's Contract Manufacturing segment is expected to see a 200 basis point decline in margins in fiscal year 2025 due to lower utilization.
Exercise caution. This may be a value trap. Just because it has fallen 40% doesn't mean it's cheap. It could still fall further.
I took these points into consideration in my initial research. I aim to buy businesses that are going through hard times but the problems are solvable. Your points seem very short term minded if I must say.
A few points I would like to make
- Companies are now entering normal ordering patterns as inventory levels are getting back to normalised levels.
- It's West decision not to participate. The other customer is leaving due to West demands.
- FX headwinds are incontrollable due to Wests international operations.
- The 200 basis points decline should be short term as West is gradually phasing out their contracts with customers that don't fit their return threshold. Long term, we have GLP-1's which will fill the gap of the loss revenues.
West isn't cheap, but its fair in my opinion at by buy price of $202. Especially with the really high barriers to entry, the high switching costs from customers and the growth in large molecule therapies being researched and brought to market.
This company was riding a Covid-19 wave for a few years which carried its valuation to unsustainable levels. Even after the recent pull back the valuation is difficult to justify.
There are a number of headwinds:
- The pandemic resulted in demand being pulled forward. The impact of customer inventory destocking now continues to weigh on the company's Proprietary Products segment.
- The company has made the decision to not participate in the next-generation CGM device development going forward, as it cannot achieve its financial thresholds. One of its CGM customers has already started to exit, while the other has informed West Pharmaceutical of its intention to exit in mid-2026.
- The company expects a $75 million headwind to its 2025 net sales guidance based on current foreign exchange rates.
- The company's Contract Manufacturing segment is expected to see a 200 basis point decline in margins in fiscal year 2025 due to lower utilization.
Exercise caution. This may be a value trap. Just because it has fallen 40% doesn't mean it's cheap. It could still fall further.
Thank you for your comment.
I took these points into consideration in my initial research. I aim to buy businesses that are going through hard times but the problems are solvable. Your points seem very short term minded if I must say.
A few points I would like to make
- Companies are now entering normal ordering patterns as inventory levels are getting back to normalised levels.
- It's West decision not to participate. The other customer is leaving due to West demands.
- FX headwinds are incontrollable due to Wests international operations.
- The 200 basis points decline should be short term as West is gradually phasing out their contracts with customers that don't fit their return threshold. Long term, we have GLP-1's which will fill the gap of the loss revenues.
West isn't cheap, but its fair in my opinion at by buy price of $202. Especially with the really high barriers to entry, the high switching costs from customers and the growth in large molecule therapies being researched and brought to market.
Great write up, thanks for sharing. What is the catalyst for re-rating do you think ?