The stock of Jazz Pharmaceuticals PLC (NAS:JAZZ, 30-year Financials) shows every sign of being modestly 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 $167.52 per share and the market cap of $9.4 billion, Jazz Pharmaceuticals PLC stock is estimated to be modestly undervalued. GF Value for Jazz Pharmaceuticals PLC is shown in the chart below.
Because Jazz Pharmaceuticals PLC is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 16.6% over the past three years and is estimated to grow 14.67% annually over the next three to five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Jazz Pharmaceuticals PLC has a cash-to-debt ratio of 0.95, which ranks worse than 83% of the companies in Biotechnology industry. Based on this, GuruFocus ranks Jazz Pharmaceuticals PLC's financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of Jazz Pharmaceuticals PLC 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. Jazz Pharmaceuticals PLC has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2.4 billion and earnings of $4.21 a share. Its operating margin is 32.39%, which ranks better than 93% of the companies in Biotechnology industry. Overall, GuruFocus ranks the profitability of Jazz Pharmaceuticals PLC at 8 out of 10, which indicates strong profitability. This is the revenue and net income of Jazz Pharmaceuticals PLC over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Jazz Pharmaceuticals PLC is 16.6%, which ranks better than 68% of the companies in Biotechnology industry. The 3-year average EBITDA growth rate is 1.2%, which ranks in the middle range of the companies in Biotechnology industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Jazz Pharmaceuticals PLC's ROIC is 16.40 while its WACC came in at 5.98. The historical ROIC vs WACC comparison of Jazz Pharmaceuticals PLC is shown below:
Overall, Jazz Pharmaceuticals PLC (NAS:JAZZ, 30-year Financials) stock shows every sign of being modestly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Biotechnology industry. To learn more about Jazz Pharmaceuticals PLC stock, you can check out its 30-year Financials here.
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