Celgene Corp. (NASDAQ:CELG)

The analysis of the Price to Operating Profit (P/OP) ratio from 2006 to 2019 reveals a long-term trajectory of valuation compression coinciding with substantial growth in operating efficiency.

Long-term Valuation Trends

A significant downward trend in the P/OP ratio is observed over the analyzed period. Starting at an exceptionally high multiple of 169.22 in 2006, the ratio declined to 12.13 by 2019. This progression indicates a shift from a highly speculative valuation, likely based on future growth expectations, to a more mature valuation supported by realized earnings.

Operating Profit Performance

Operating profit per share demonstrated strong growth, increasing from 0.12 in 2006 to 7.39 in 2019. A notable anomaly occurred in 2009, where operating profit per share fell to -1.59, rendering the P/OP ratio unavailable for that period. Following this contraction, the operating profit per share recovered and maintained a consistent upward trend, particularly accelerating between 2017 and 2019.

Correlation Between Share Price and Profitability

The relationship between share price and operating profit shifted through three distinct phases. From 2006 to 2010, the ratio collapsed rapidly as operating profits began to scale. Between 2011 and 2015, a period of relative stability was followed by a valuation spike, with the P/OP ratio reaching 39.23 in 2015 as the share price peaked at 123.43. In the final phase from 2016 to 2019, the P/OP ratio declined sharply to 12.13; this was driven by the combination of a softening share price and an accelerating increase in operating profit per share.