Charles River Laboratories Stock Presents Buying Opportunity After 60% Decline Despite Strong Long-Term Growth
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Charles River Laboratories operates in the stable and growing biopharmaceutical research industry, delivering 15% annual returns over 21 years. However, after substantial overvaluation, the stock has declined 60% from all-time highs in 2021.
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The company provides outsourced drug discovery, safety testing, and manufacturing services to pharmaceutical firms. The Discovery and Safety segment now generates 63% of revenue with 25% EBITDA margins.
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Revenue has grown at 15% annually over the last decade, but free cash flow margins have decreased due to growing capital expenditures for growth and acquisitions. Debt levels are relatively high.
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Under conservative estimates, the potential 5-year return could be 15% annualized, suggesting the current valuation around 15x EBITDA presents a buying opportunity.
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Risks include high debt levels, potential overpriced acquisitions, and the fluctuating regulatory environment surrounding animal research models.