SLP - Simulations Plus: Reliance On Consulting And Acquisitions Creates Doubts

2024-05-14 01:16:45 ET

Summary

• Simulations Plus is benefiting from the growing use of computational tools in drug discovery, which would be boosted by the FDA Modernization Act 2.0.
• The biosimulation market is highly fragmented and underpenetrated, providing SLP with both organic and inorganic growth opportunities.
• While the company is operating in an attractive market and has a strong business, the company's valuation and growth prospects make the stock unappealing.

Simulations Plus ( SLP ) is a software and services provider that is benefiting from the growing use of computational tools in drug discovery. While Simulations Plus has a strong business, its valuation is high given modest growth prospects and a heavy reliance on acquisitions and consulting revenue. I would not expect a meaningful correction based on this though, as the market generally places a large premium on high margin simulation software companies. It does call into question the potential long-term returns of investing in Simulations Plus, particularly if growth is increasingly driven by services going forward.

Market

Drug discovery is hampered by the time and cost to bring a drug to market, with a large part of the problem driven by high failure rates during clinical trials. Biosimulation software can accelerate development and result in safer and more effective drugs, helping to resolve some of these issues....

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