The stock of Innoviva (NAS:INVA, 30-year Financials) is believed to be significantly undervalued, 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 $11.67 per share and the market cap of $1.2 billion, Innoviva stock gives every indication of being significantly undervalued. GF Value for Innoviva is shown in the chart below.
Because Innoviva is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth, which averaged 17.9% over the past five years.
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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. Innoviva has a cash-to-debt ratio of 0.64, which is worse than 87% of the companies in Biotechnology industry. GuruFocus ranks the overall financial strength of Innoviva at 5 out of 10, which indicates that the financial strength of Innoviva is fair. This is the debt and cash of Innoviva over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Innoviva has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $336.8 million and earnings of $2.02 a share. Its operating margin of 95.35% better than 99% of the companies in Biotechnology industry. Overall, GuruFocus ranks Innoviva's profitability as strong. This is the revenue and net income of Innoviva over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Innoviva is 17.9%, which ranks better than 71% of the companies in Biotechnology industry. The 3-year average EBITDA growth is 28.6%, which ranks better than 73% 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, Innoviva's return on invested capital is 55.19, and its cost of capital is 5.15. The historical ROIC vs WACC comparison of Innoviva is shown below:
In closing, The stock of Innoviva (NAS:INVA, 30-year Financials) gives every indication of being significantly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 73% of the companies in Biotechnology industry. To learn more about Innoviva stock, you can check out its 30-year Financials here.
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