The stock of AEterna Zentaris (NAS:AEZS, 30-year Financials) is believed to be significantly overvalued, 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 $0.9417 per share and the market cap of $115 million, AEterna Zentaris stock shows every sign of being significantly overvalued. GF Value for AEterna Zentaris is shown in the chart below.
Because AEterna Zentaris is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 13% over the past five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. AEterna Zentaris has a cash-to-debt ratio of 131.91, which is better than 75% of the companies in Biotechnology industry. GuruFocus ranks the overall financial strength of AEterna Zentaris at 5 out of 10, which indicates that the financial strength of AEterna Zentaris is fair. This is the debt and cash of AEterna Zentaris 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. AEterna Zentaris has been profitable 2 over the past 10 years. Over the past twelve months, the company had a revenue of $3.7 million and loss of $0.151 a share. Its operating margin is -168.65%, which ranks in the middle range of the companies in Biotechnology industry. Overall, the profitability of AEterna Zentaris is ranked 2 out of 10, which indicates poor profitability. This is the revenue and net income of AEterna Zentaris 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 AEterna Zentaris is 13%, which ranks in the middle range of the companies in Biotechnology industry. The 3-year average EBITDA growth is 52.8%, which ranks better than 90% 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, AEterna Zentaris's ROIC is -57.88 while its WACC came in at 15.59. The historical ROIC vs WACC comparison of AEterna Zentaris is shown below:
In closing, the stock of AEterna Zentaris (NAS:AEZS, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 90% of the companies in Biotechnology industry. To learn more about AEterna Zentaris stock, you can check out its 30-year Financials here.
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