The stock of TherapeuticsMD (NAS:TXMD, 30-year Financials) appears 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 $1.21 per share and the market cap of $469.3 million, TherapeuticsMD stock is believed to be possible value trap. GF Value for TherapeuticsMD is shown in the chart below.
The reason we think that TherapeuticsMD stock might be a value trap is because its Piotroski F-score is only 3, 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, TherapeuticsMD has an Altman Z-score of -7.85, 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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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. TherapeuticsMD has a cash-to-debt ratio of 0.32, which is worse than 70% of the companies in Drug Manufacturers industry. GuruFocus ranks the overall financial strength of TherapeuticsMD at 1 out of 10, which indicates that the financial strength of TherapeuticsMD is poor. This is the debt and cash of TherapeuticsMD 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. TherapeuticsMD has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $64.9 million and loss of $0.67 a share. Its operating margin is -239.76%, which ranks worse than 88% of the companies in Drug Manufacturers industry. Overall, GuruFocus ranks the profitability of TherapeuticsMD at 2 out of 10, which indicates poor profitability. This is the revenue and net income of TherapeuticsMD 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. TherapeuticsMD's 3-year average revenue growth rate is better than 90% of the companies in Drug Manufacturers industry. TherapeuticsMD's 3-year average EBITDA growth rate is -13.6%, which ranks worse than 77% of the companies in Drug Manufacturers industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, TherapeuticsMD's return on invested capital is -218.96, and its cost of capital is 13.42. The historical ROIC vs WACC comparison of TherapeuticsMD is shown below:
In closing, The stock of TherapeuticsMD (NAS:TXMD, 30-year Financials) shows every sign of being possible value trap. The company's financial condition is poor and its profitability is poor. Its growth ranks worse than 77% of the companies in Drug Manufacturers industry. To learn more about TherapeuticsMD stock, you can check out its 30-year Financials here.
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