The stock of Exelixis (NAS:EXEL, 30-year Financials) is estimated to be fairly valued, 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 $22.69 per share and the market cap of $7.1 billion, Exelixis stock is believed to be fairly valued. GF Value for Exelixis is shown in the chart below.
Because Exelixis is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 28.9% over the past three years and is estimated to grow 19.86% annually over the next three to five years.
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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. Exelixis has a cash-to-debt ratio of 24.58, which which ranks in the middle range of the companies in Biotechnology industry. The overall financial strength of Exelixis is 7 out of 10, which indicates that the financial strength of Exelixis is fair. This is the debt and cash of Exelixis over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Exelixis has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $987.5 million and earnings of $0.35 a share. Its operating margin is 11.14%, which ranks better than 82% of the companies in Biotechnology industry. Overall, GuruFocus ranks the profitability of Exelixis at 5 out of 10, which indicates fair profitability. This is the revenue and net income of Exelixis 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. Exelixis's 3-year average revenue growth rate is better than 79% of the companies in Biotechnology industry. Exelixis's 3-year average EBITDA growth rate is -11.4%, which ranks worse than 71% of the companies in Biotechnology industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Exelixis's return on invested capital is 10.82, and its cost of capital is 6.84. The historical ROIC vs WACC comparison of Exelixis is shown below:
In conclusion, the stock of Exelixis (NAS:EXEL, 30-year Financials) is believed to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 71% of the companies in Biotechnology industry. To learn more about Exelixis stock, you can check out its 30-year Financials here.
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