I got my first Gilead shares on september 2014. At that time, the stock was selling at 101$ and the EPS were 2,20$.
About 18 months later, the stock is selling at 86$ and the EPS have been 3,18$ for the last quarter.
During the same period, the PE ratio went from 13 to 7, while the EPS rose by 44%.
Isn't it crazy? It's a great example of how markets work.
The price of a stock is made of two things: the results (earnings or sales) of the business and the excitation of the market about that stock. That's why Amazon and Netflix are selling at such a high multiple. The market is crazy about these stocks even if they don't get high earnings. The market believes that the future of humanity is linked to those stocks.
In the case of Gilead, even if the results are very good, the market anticipates the worst and there's a big contraction of the PE ratio instead of an expansion. The market believes that Gilead doesn't have a pipeline of drugs large enough to protect the future of the company. It also believes that the US government will do something to stop big companies to sell their drugs at a high price.
I'm frustrated about it, because I think Gilead should be selling much higher (about twice it's actual price). But it's life. It's been the same for years with Home Capital Group.
Our duty, as investors, is not to give up and don't sell the stock in which we believe. Even if the market is negative towards a high as stratosphere ROE stock with exceptional growth. Of course, there's risks associated to Gilead.
But to justify a PE ratio of 7 for such a company, risk should be bankrupcy, not a slight decline in revenues.