The stock of Organovo Holdings (NAS:ONVO, 30-year Financials) appears to be 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 $8.97 per share and the market cap of $63.8 million, Organovo Holdings stock appears to be possible value trap. GF Value for Organovo Holdings is shown in the chart below.
The reason we think that Organovo Holdings stock might be a value trap is because
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Organovo Holdings has a cash-to-debt ratio of 10000.00, which is better than 100% of the companies in the industry of Medical Diagnostics & Research. GuruFocus ranks the overall financial strength of Organovo Holdings at 7 out of 10, which indicates that the financial strength of Organovo Holdings is fair. This is the debt and cash of Organovo Holdings over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Organovo Holdings has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $0 million and loss of $2.53 a share. Its operating margin is -5745.30%, which ranks in the bottom 10% of the companies in the industry of Medical Diagnostics & Research. Overall, the profitability of Organovo Holdings is ranked 2 out of 10, which indicates poor profitability. This is the revenue and net income of Organovo Holdings over the past years:
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. Organovo Holdings's 3-year average revenue growth rate is worse than 87% of the companies in the industry of Medical Diagnostics & Research. Organovo Holdings's 3-year average EBITDA growth rate is 25.7%, which ranks better than 71% of the companies in the industry of Medical Diagnostics & Research.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Organovo Holdings's ROIC was -1549.85, while its WACC came in at 5.33. The historical ROIC vs WACC comparison of Organovo Holdings is shown below:
In conclusion, the stock of Organovo Holdings (NAS:ONVO, 30-year Financials) is estimated to be possible value trap. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 71% of the companies in the industry of Medical Diagnostics & Research. To learn more about Organovo Holdings stock, you can check out its 30-year Financials here.
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