Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Myriad Genetics Inc (MYGN, Financial). The stock, which is currently priced at $16.21, recorded a loss of 3.48% in a day and a 3-month decrease of 29.49%. The stock's fair valuation is $24.05, as indicated by its GF Value.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
- 1. Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
- 2. GuruFocus adjustment factor based on the company's past returns and growth.
- 3. Future estimates of the business performance.
We believe the GF Value Line is the fair value that the stock should be traded at. The stock price will most likely fluctuate around the GF Value Line. If the stock price 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.
However, investors need to consider a more in-depth analysis before making an investment decision. Despite its seemingly attractive valuation, certain risk factors associated with Myriad Genetics (MYGN, Financial) should not be ignored. These risks are primarily reflected through its low Piotroski F-score of 2, Altman Z-score of 1.13, and the company's revenues and earnings have been on a downward trend over the past five years, which raises a crucial question: Is Myriad Genetics a hidden gem or a value trap? These indicators suggest that Myriad Genetics, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
A Closer Look at the Piotroski F-Score and Altman Z-Score
The Piotroski F-score, created by accounting professor Joseph Piotroski, is a tool used to assess the strength of a company's financial health. The score is based on nine criteria that fall into three categories: profitability, leverage/liquidity/ source of funds, and operating efficiency. The overall score ranges from 0 to 9, with higher scores indicating healthier financials. Myriad Genetics's current Piotroski F-Score, however, falls in the lower end of this spectrum, indicating potential red flags for investors.
Before delving into the details, let's understand what the Altman Z-score entails. Invented by New York University Professor Edward I. Altman in 1968, the Z-Score is a financial model that predicts the probability of a company entering bankruptcy within a two-year time frame. The Altman Z-Score combines five different financial ratios, each weighted to create a final score. A score below 1.8 suggests a high likelihood of financial distress, while a score above 3 indicates a low risk.
Company Introduction
Myriad Genetics is a molecular diagnostics company that provides testing services designed to assess an individual's risk of developing a disease. The firm produces MyRisk, a 48-gene panel with the capability to identify the elevated risk of developing 11 types of cancer. Other diagnostic products include BRACAnalysis CDx, the FDA-approved companion diagnostic for PARP inhibitors; GeneSight, which helps improve responses to psychotropic drugs for patients suffering from depression; and Prequel, a noninvasive prenatal test. Precise Oncology Solutions, launched in 2022, combines Precise Tumor with companion diagnostic and prognostic tests such as MyChoice CDx, Prolaris, and EndoPredict. The firm offers biomarker discovery and companion diagnostic services to pharma and biotech companies.
Analysis of Myriad Genetics's' Profitability
Firstly, let's address profitability. One significant component of the F-Score is a positive return on assets (ROA). A closer look at Myriad Genetics's ROA reveals a worrying trend of negative returns. This indicates the company's inability to generate profit from its assets - a fundamental concern for any investor.
Let's delve deeper into Myriad Genetics's financial health by examining the decline in its return on assets (ROA) over the past three years. The data indicates 2021: -7.02; 2022: -1.36; 2023: -20.76, when expressed in percentages. Such a decrease is concerning, as the Piotroski F-Score penalizes companies with lower current ROA compared to the previous period. This ongoing decline highlights another potential risk associated with investing in Myriad Genetics.
Observing the financials of Myriad Genetics, it's important to note that the cash flow from operations over the trailing twelve months (TTM) stands at $-44.2 million, whereas the net income in the same period is significantly higher at $-248.2 million. The Piotroski F-score considers this discrepancy as a potential red flag. The rationale behind this is that a company's operating cash flow is a more direct and less manipulated measure of its cash-generating ability than net income. Net income, while important, is susceptible to accounting treatments and non-cash items which can distort the true cash profitability of the company. If a company consistently shows lower cash flows from operations relative to its net income, it could indicate that the earnings quality is poor and the company might have difficulties sustaining its operations or financing its obligations, a fact which could negatively impact its financial stability and investor confidence.
Leverage, Liquidity and Source of Funds: A Worrying Trend
Examining Myriad Genetics's financial stability, there's a notable decrease in its current ratio over the past three years, as shown by the data 2021: 1.99; 2022: 3.07; 2023: 1.33, which is expressed as percentages. The current ratio is a key indicator of a company's short-term financial health, as it gauges the ability to cover short-term liabilities with short-term assets. A declining current ratio suggests that Myriad Genetics's liquidity and capability to manage immediate financial obligations are deteriorating.
Operating Efficiency: A Darker Picture
Examining the data provided: 2021: 77.20; 2022: 80.40; 2023: 81.70, it becomes evident that Myriad Genetics has seen an increase in its Diluted Average Shares Outstanding over the past three years. This trend signals that the company has issued more shares. While issuing additional shares can provide immediate capital for the business, it can also lead to the dilution of existing shares' value. This dilution occurs because the earnings of the company now have to be divided among a larger pool of shares, which could decrease Earnings Per Share (EPS). Consequently, if the company's earnings don't grow at a pace that matches or exceeds this share increase, it could lead to a reduction in the value perceived by existing shareholders, potentially impacting their investment returns. Hence, while additional share issuance may provide necessary capital, it is important to monitor its impact on shareholder value carefully.
Lastly, concerning operating efficiency, the Piotroski F-score examines changes in gross margin and asset turnover. Regrettably, Myriad Genetics follows a discouraging trajectory with a decrease in gross margin percentage over the past three years, as demonstrated by the data provided: 2021: 70.50; 2022: 71.55; 2023: 68.34 (expressed in percentages). This contraction in gross margin suggests that Myriad Genetics is grappling with either an escalation in the cost of goods sold or dwindling prices - both of which are inauspicious indicators for profitability.
While the Piotroski F-score is not the only lens through which to view a potential investment, it is a robust and comprehensive tool for evaluating a company's financial health. Unfortunately for Myriad Genetics, its current score suggests potential troubles.
Myriad Genetics's Low Altman Z-Score: A Breakdown of Key Drivers
A dissection of Myriad Genetics's Altman Z-score reveals Myriad Genetics's financial health may be weak, suggesting possible financial distress:
The Retained Earnings to Total Assets ratio provides insights into a company's capability to reinvest its profits or manage debt. Evaluating Myriad Genetics's historical data, 2021: -0.20; 2022: -0.24; 2023: -0.45, we observe a declining trend in this ratio. This downward movement indicates Myriad Genetics's diminishing ability to reinvest in its business or effectively manage its debt. Consequently, it exerts a negative impact on its Z-Score.
The Bearish Signs: Declining Revenues and Earnings
One of the telltale indicators of a company's potential trouble is a sustained decline in revenues. In the case of Myriad Genetics, both the revenue per share (evident from the last five years' TTM data: 2019: 11.38; 2020: 8.60; 2021: 8.74; 2022: 8.35; 2023: 8.60; ) and the 5-year revenue growth rate (-5.2%) have been on a consistent downward trajectory. This pattern may point to underlying challenges such as diminishing demand for Myriad Genetics's products, or escalating competition in its market sector. Either scenario can pose serious risks to the company's
