Is Teva Pharmaceuticals a Value Trap?

Teva Pharmaceuticals Industries Limited (NYSE:TEVA) look like a cheap stock to buy. Its share price is trading at just 0.7 times book value and a forward price-to-earnings multiple of less than four. Year to date, Teva’s stock is down 3% and has underperformed the S&P 500, which is up over 2%.

However, before investors consider investing in Teva, they need to consider the many problems it’s facing today, as it could end up being a value trap.

Although Teva’s turned a profit in the past three quarters – its margins have been minimal, coming in no higher than 4% during that time. And in the six periods prior to that, the company was in the red.

There also hasn’t been any growth in recent years, with Teva’s top line declining in each of the past two years. Revenue of $16.9 billion U.S. in 2019 was down 25% from the $22.4 billion U.S. the company reported two years earlier.

And then, there’s all the company’s legal problems. Federal prosecutors are going after the company on charges relating to price fixing and it’s also in hot water for the charitable donations it made in the past that may have violated an anti-kickback law.

If convicted, the company could be excluded from federal healthcare programs in the U.S., further jeopardizing the Israeli company’s business and its long-term sales and growth.

As tempting as it may be to buy Teva thinking that the stock is a good value buy, this is a great example of why investors need to look beyond just the numbers. With no shortage of problems, this is a stock to stay far away from.