The stock of Intercept Pharmaceuticals (NAS:ICPT, 30-year Financials) is estimated 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 $24.28 per share and the market cap of $801.6 million, Intercept Pharmaceuticals stock is believed to be possible value trap. GF Value for Intercept Pharmaceuticals is shown in the chart below.
The reason we think that Intercept Pharmaceuticals stock might be a value trap is because its Piotroski F-score is only 2, out of the total of 9. Such a low Piotroski F-score indicates the company is getting worse in multiple aspects in the areas of profitability, funding and efficiency. In this case, investors should look beyond the low valuation of the company and make sure it has no long-term risks. To learn more about how the Piotroski F-score measures the business trend of a company, please go here. Furthermore, Intercept Pharmaceuticals has an Altman Z-score of -5.17, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions. To learn more about how the Z-score measures the financial risk of the company, please go here.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Intercept Pharmaceuticals has a cash-to-debt ratio of 0.82, which is worse than 84% of the companies in Biotechnology industry. The overall financial strength of Intercept Pharmaceuticals is 1 out of 10, which indicates that the financial strength of Intercept Pharmaceuticals is poor. This is the debt and cash of Intercept Pharmaceuticals 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. Intercept Pharmaceuticals has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $312.7 million and loss of $8.37 a share. Its operating margin is -69.27%, which ranks in the middle range of the companies in Biotechnology industry. Overall, the profitability of Intercept Pharmaceuticals is ranked 2 out of 10, which indicates poor profitability. This is the revenue and net income of Intercept Pharmaceuticals 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 Intercept Pharmaceuticals is 22%, which ranks better than 74% of the companies in Biotechnology industry. The 3-year average EBITDA growth is 19.6%, which ranks better than 66% of the companies in Biotechnology industry.
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, Intercept Pharmaceuticals's ROIC was -313.94, while its WACC came in at 9.95. The historical ROIC vs WACC comparison of Intercept Pharmaceuticals is shown below:
To conclude, the stock of Intercept Pharmaceuticals (NAS:ICPT, 30-year Financials) appears to be possible value trap. The company's financial condition is poor and its profitability is poor. Its growth ranks better than 66% of the companies in Biotechnology industry. To learn more about Intercept Pharmaceuticals stock, you can check out its 30-year Financials here.
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