The stock of Amphastar Pharmaceuticals (NAS:AMPH, 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 $18.09 per share and the market cap of $858.1 million, Amphastar Pharmaceuticals stock gives every indication of being modestly undervalued. GF Value for Amphastar Pharmaceuticals is shown in the chart below.
Because Amphastar Pharmaceuticals is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 12.8% over the past five years.
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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. Amphastar Pharmaceuticals has a cash-to-debt ratio of 1.57, which is in the middle range of the companies in Drug Manufacturers industry. The overall financial strength of Amphastar Pharmaceuticals is 7 out of 10, which indicates that the financial strength of Amphastar Pharmaceuticals is fair. This is the debt and cash of Amphastar Pharmaceuticals over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Amphastar Pharmaceuticals has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $349.8 million and earnings of $0.026 a share. Its operating margin is 3.13%, which ranks in the middle range of the companies in Drug Manufacturers industry. Overall, the profitability of Amphastar Pharmaceuticals is ranked 4 out of 10, which indicates poor profitability. This is the revenue and net income of Amphastar 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 Amphastar Pharmaceuticals is 12.8%, which ranks better than 68% of the companies in Drug Manufacturers industry. The 3-year average EBITDA growth is 18.5%, which ranks better than 71% of the companies in Drug Manufacturers 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, Amphastar Pharmaceuticals's return on invested capital is 0.60, and its cost of capital is 5.99. The historical ROIC vs WACC comparison of Amphastar Pharmaceuticals is shown below:
In conclusion, the stock of Amphastar Pharmaceuticals (NAS:AMPH, 30-year Financials) gives every indication of being modestly undervalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 71% of the companies in Drug Manufacturers industry. To learn more about Amphastar Pharmaceuticals stock, you can check out its 30-year Financials here.
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