The stock of Gilead Sciences (NAS:GILD, 30-year Financials) gives every indication 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 $66.44 per share and the market cap of $83.5 billion, Gilead Sciences stock shows every sign of being modestly undervalued. GF Value for Gilead Sciences is shown in the chart below.
Because Gilead Sciences is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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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. Gilead Sciences has a cash-to-debt ratio of 0.24, which is worse than 76% of the companies in Drug Manufacturers industry. The overall financial strength of Gilead Sciences is 4 out of 10, which indicates that the financial strength of Gilead Sciences is poor. This is the debt and cash of Gilead Sciences 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. Gilead Sciences has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $24.7 billion and earnings of $0.08 a share. Its operating margin is 39.82%, which ranks better than 98% of the companies in Drug Manufacturers industry. Overall, GuruFocus ranks the profitability of Gilead Sciences at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Gilead Sciences 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. Gilead Sciences's 3-year average revenue growth rate is worse than 71% of the companies in Drug Manufacturers industry. Gilead Sciences's 3-year average EBITDA growth rate is -35.3%, which ranks worse than 88% of the companies in Drug Manufacturers 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, Gilead Sciences's ROIC was 1.36, while its WACC came in at 3.16. The historical ROIC vs WACC comparison of Gilead Sciences is shown below:
In conclusion, the stock of Gilead Sciences (NAS:GILD, 30-year Financials) is estimated to be modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 88% of the companies in Drug Manufacturers industry. To learn more about Gilead Sciences stock, you can check out its 30-year Financials here.
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