Intercept Pharmaceuticals Stock Is Believed To Be Possible Value Trap
GuruFocus.com
4 min read
- By GF Value
The stock of Intercept Pharmaceuticals (NAS:ICPT, 30-year Financials) shows every sign of being possible value trap, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $23.13 per share and the market cap of $763.7 million, Intercept Pharmaceuticals stock appears to be possible value trap. GF Value for Intercept Pharmaceuticals is shown in the chart below.
Intercept Pharmaceuticals Stock Is Believed To Be Possible Value Trap
The reason we think that Intercept Pharmaceuticals stock might be a value trap is because its Piotroski F-score is only 2, out of the total of 9. Such a low Piotroski F-score indicates the company is getting worse in multiple aspects in the areas of profitability, funding and efficiency. In this case, investors should look beyond the low valuation of the company and make sure it has no long-term risks. To learn more about how the Piotroski F-score measures the business trend of a company, please go here. Furthermore, Intercept Pharmaceuticals has an Altman Z-score of -5.16, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions. To learn more about how the Z-score measures the financial risk of the company, please go here.
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Intercept Pharmaceuticals has a cash-to-debt ratio of 0.82, which which ranks worse than 84% of the companies in Biotechnology industry. The overall financial strength of Intercept Pharmaceuticals is 1 out of 10, which indicates that the financial strength of Intercept Pharmaceuticals is poor. This is the debt and cash of Intercept Pharmaceuticals over the past years:
Intercept Pharmaceuticals Stock Is Believed To Be Possible Value Trap
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Intercept Pharmaceuticals has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $312.7 million and loss of $8.37 a share. Its operating margin is -69.27%, which ranks in the middle range of the companies in Biotechnology industry. Overall, the profitability of Intercept Pharmaceuticals is ranked 3 out of 10, which indicates poor profitability. This is the revenue and net income of Intercept Pharmaceuticals over the past years:
Intercept Pharmaceuticals Stock Is Believed To Be Possible Value Trap
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Intercept Pharmaceuticals's 3-year average revenue growth rate is better than 73% of the companies in Biotechnology industry%. Intercept Pharmaceuticals's 3-year average EBITDA growth rate is 19.6%, which ranks better than 67% of the companies in Biotechnology industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Intercept Pharmaceuticals's return on invested capital is -313.94, and its cost of capital is 9.91. The historical ROIC vs WACC comparison of Intercept Pharmaceuticals is shown below:
Intercept Pharmaceuticals Stock Is Believed To Be Possible Value Trap
In short, Intercept Pharmaceuticals (NAS:ICPT, 30-year Financials) stock appears to be possible value trap. The company's financial condition is poor and its profitability is poor. Its growth ranks better than 67% of the companies in Biotechnology industry. To learn more about Intercept Pharmaceuticals stock, you can check out its 30-year Financials here. To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener. This article first appeared on GuruFocus.
