Many value investors seem to be enamored with Gilead because it is trading at a “low PE.” However, looking at uncertainties related to opportunities for Gilead’s future growth and considering that its single largest revenue source – its hepatitis c virus (HCV) treatment franchise – is likely to continue to shrink in the near-term, we believe the present price is easily justified by fundamentals. Using a PE ratio or any other multiple to value a firm only obfuscates assumptions for the rate of growth of future cash flows. Gilead’s shares are a perfect case in point why multiples-based valuations are often deeply flawed.

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