Since January 2025, Collegium Pharmaceutical has been in a holding pattern, posting a small loss of 3% while floating around $31.78. The stock also fell short of the S&P 500’s 5.4% gain during that period.
Is now the time to buy Collegium Pharmaceutical, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Collegium Pharmaceutical Not Exciting?
We don't have much confidence in Collegium Pharmaceutical. Here are three reasons why you should be careful with COLL and a stock we'd rather own.
1. Fewer Distribution Channels Limit its Ceiling
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With just $664.3 million in revenue over the past 12 months, Collegium Pharmaceutical is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.
2. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Collegium Pharmaceutical’s margin dropped by 6.5 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Collegium Pharmaceutical’s free cash flow margin for the trailing 12 months was 29.6%.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Collegium Pharmaceutical’s ROIC averaged 3.9 percentage point decreases each year. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Collegium Pharmaceutical isn’t a terrible business, but it doesn’t pass our quality test. With its shares underperforming the market lately, the stock trades at 4.4× forward P/E (or $31.78 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at one of our all-time favorite software stocks.
Stocks We Would Buy Instead of Collegium Pharmaceutical
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