(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Gilead Sciences Inc. (GILD) stock has been a significant disappointment over the past few years. Its price has fallen by around 30 percent and isn't likely to rise anytime soon.

An article in Barrons recently noted that Gilead stock could increase by as much as 50 percent. That would take Gilead to nearly $113 a share, a price that is too rich for a stock with no revenue or earnings growth on the horizon. 

It boils down to a catalyst, and Gilead has none presently. What is the catalyst that would make the stock rise over the next two or three years? Revenue for the company has been steadily declining since the first quarter of 2016 and is expected to continue to drop through 2018 before potentially stabilizing in 2019.

Falling sales of the company's hepatitis C drug have caused revenue to decline, and that lost revenue has yet to be replaced. 

GILD Chart

GILD data by YCharts


Based on estimates of revenue and earnings, Gilead shares are at best fairly valued. An argument could even be made that Gilead, from a fundamental standpoint, is overvalued at current levels, trading at 11 times one-year forward earnings estimates.

The reason is simple: Gilead's earnings are expected to decline by 21 percent in 2018. Should Gilead stock trade up to $113 per share, then it would be trading at 16 times forward earnings for both 2018 and 2019 because earnings are expected to be flat in 2019. 

Declining Revenues

Revenue for Gilead has been steadily declining for nearly two years, and are expected to continue to drop until 2019. Analysts see revenue falling to $21.93 billion in 2019, from an expected $25.8 billion in 2017, a decrease of 15 percent. 

Multiple Expansion

Gilead tried to replace some of its lost sales through its acquisition of Kite Pharma in August, but that acquisition won't be accretive to earnings until 2020. (See also: Why Gilead's Acquisition of Kite Is Not Enough.)

If Gilead can't find another way to start growing again and give investors a reason to push the stock higher, then it will have nowhere to go. The only way Gilead shares could rise without growth is through multiple expansion. And if the biotech sector starts to rise, then Gilead's stock could ride those coattails for a while.

If Gilead is not worth paying 11 times earnings, then it surely is not worth 16.

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.