What: The share price of Australian Pharmaceutical Industries Ltd (ASX: API) has rallied over 2% to touch a fresh 52-week high of $2.08 today. These are levels last seen briefly in late 2009, but really mark a level for the stock not achieved since mid-2008!
Today's gains bring the total share price increase over the last one and five years to 120% and 340% respectively, making the stock a sensational investment over the past few years. Over the past decade however the share price still remains down around 35%.
So What: The share price gains are in response to a marked turnaround in the fortunes of the beauty and health retailer which owns pharmacy banners including Priceline and Soul Pattinson.
At its interim result for financial year 2015, Australian Pharmaceutical Industries (API) recorded a 32% uplift in underlying profits, a 33% increase in the dividend and reported 3.9% growth in like-for-like sales.
The full year results were even more impressive with profit jumping 38% to $43 million, the total dividend growing 29% to 4.5 cents per share (cps), and like-for-like sales growth of 4.5% being achieved.
The improved operating performance and share price appreciation has been particularly welcome news for major shareholder Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). As long-term shareholders they have watched on as the stock has slumped from over $3 a share in 2005 to less than 30 cents in 2011.
Now What: Having rallied so strongly it's hard to see the case for buying shares in API today. With consensus data showing API is forecast to earn 12 cps in FY 2017, the stock trades on a forward price-to-earnings ratio of nearly 17x. That's a relatively full price for a stock which is in a mature industry and that may be approaching its normalised earnings margin.
In contrast, peer Sigma Pharmaceutical Limited (ASX: SIP) is available on a forecast FY 2017 PE of around 13x which would appear relatively more appealing.
