The stock of Heat Biologics (NAS:HTBX, 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 $7.19 per share and the market cap of $182.7 million, Heat Biologics stock is estimated to be significantly overvalued. GF Value for Heat Biologics is shown in the chart below.
Because Heat Biologics is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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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. Heat Biologics has a cash-to-debt ratio of 60.45, which ranks better than 70% of the companies in Biotechnology industry. Based on this, GuruFocus ranks Heat Biologics's financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of Heat Biologics 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. Heat Biologics has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $2.9 million and loss of $1.77 a share. Its operating margin is -847.76%, which ranks worse than 70% of the companies in Biotechnology industry. Overall, GuruFocus ranks the profitability of Heat Biologics at 1 out of 10, which indicates poor profitability. This is the revenue and net income of Heat Biologics 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. Heat Biologics's 3-year average revenue growth rate is worse than 85% of the companies in Biotechnology industry. Heat Biologics's 3-year average EBITDA growth rate is 59.7%, which ranks better than 93% of the companies in Biotechnology 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, Heat Biologics's return on invested capital is -171.79, and its cost of capital is 2.04. The historical ROIC vs WACC comparison of Heat Biologics is shown below:
In short, the stock of Heat Biologics (NAS:HTBX, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 93% of the companies in Biotechnology industry. To learn more about Heat Biologics stock, you can check out its 30-year Financials here.
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