The stock of CytomX Therapeutics (NAS:CTMX, 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 $7.65 per share and the market cap of $495.6 million, CytomX Therapeutics stock is believed to be possible value trap. GF Value for CytomX Therapeutics is shown in the chart below.
The reason we think that CytomX Therapeutics stock might be a value trap is because CytomX Therapeutics has an Altman Z-score of -0.25, 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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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. CytomX Therapeutics has a cash-to-debt ratio of 12.71, which ranks in the middle range of the companies in Biotechnology industry. Based on this, GuruFocus ranks CytomX Therapeutics's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of CytomX Therapeutics 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. CytomX Therapeutics has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $100.4 million and loss of $0.71 a share. Its operating margin is -48.43%, which ranks in the middle range of the companies in Biotechnology industry. Overall, GuruFocus ranks the profitability of CytomX Therapeutics at 3 out of 10, which indicates poor profitability. This is the revenue and net income of CytomX Therapeutics 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 CytomX Therapeutics is 4.1%, which ranks in the middle range of the companies in Biotechnology industry. The 3-year average EBITDA growth is 4%, which ranks in the middle range of the companies in Biotechnology 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, CytomX Therapeutics's return on invested capital is -28.65, and its cost of capital is 5.25. The historical ROIC vs WACC comparison of CytomX Therapeutics is shown below:
In conclusion, the stock of CytomX Therapeutics (NAS:CTMX, 30-year Financials) appears to be possible value trap. The company's financial condition is poor and its profitability is poor. Its growth ranks in the middle range of the companies in Biotechnology industry. To learn more about CytomX Therapeutics stock, you can check out its 30-year Financials here.
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