Value-focused investors often seek out undervalued stocks with the potential for significant returns. One such company that has attracted attention is Twist Bioscience Corp (TWST, Financial). Currently priced at $19.68, Twist Bioscience Corp (TWST) has shown a notable single-day gain of 13.96%, yet a 3-month decrease of 10.38%. According to the GF Value, the fair valuation of the stock is $83.78, which could suggest a significant undervaluation.
The GF Value is a proprietary measure that represents the intrinsic value of a stock, incorporating historical trading multiples, adjustments based on past performance, and future business projections. The GF Value Line is a benchmark for fair value, with the expectation that stock prices will gravitate around this line. A price significantly below the GF Value Line could indicate the potential for higher future returns.
However, an investment decision should not be made solely on the GF Value. A deeper analysis of Twist Bioscience reveals several risk factors that may classify it as a potential value trap. These risks are evident in the company's low Piotroski F-score of 2. This score suggests that Twist Bioscience may not be as financially robust as its valuation implies, warranting a closer examination before any investment.
Understanding the Piotroski F-Score and Its Implications for Twist Bioscience
The Piotroski F-score is a nine-criterion scoring system that evaluates a company's financial health across three categories: profitability, leverage/liquidity/source of funds, and operating efficiency. A score of 2 out of a possible 9 indicates that Twist Bioscience is facing challenges in these critical areas, which could signal potential investment risks.
Twist Bioscience Corp's Business Overview and Financial Assessment
Twist Bioscience Corp is a synthetic biology company with a focus on DNA synthesis technology. It aims to revolutionize the engineering of biology through its semiconductor-based DNA manufacturing process. The majority of its revenue is generated in the United States. Despite the promising technology and a market cap of $1.10 billion, the company's financials show an operating margin of -92.72% and an ROIC of -52.09%, with a WACC of 15.52%, raising questions about its profitability and investment returns.
Profitability Concerns: Negative Return on Assets
Twist Bioscience's profitability is under scrutiny, as indicated by its negative ROA. This trend suggests an inability to profit from its assets, a red flag for investors. The company's cash flow from operations (TTM) being at $-123.04 million, compared to a net income of $-209.49 million, further highlights the discrepancy between cash generation and reported earnings, a concerning sign for the company's earnings quality and operational sustainability.
Leverage, Liquidity, and Source of Funds: A Worrying Trend
An increasing debt-to-total assets ratio over the past three years (2021: 0.09; 2022: 0.08; 2023: 0.12) indicates that Twist Bioscience is taking on more debt, heightening its financial risk. This trend, coupled with a declining current ratio (2021: 10.52; 2022: 6.73; 2023: 6.12), shows a deterioration in the company's liquidity and its ability to meet short-term obligations.
Operating Efficiency: A Darker Picture
The increase in diluted average shares outstanding over the past three years (2021: 48.96; 2022: 56.29; 2023: 57.04) suggests share dilution, potentially decreasing shareholder value if earnings do not keep pace. Additionally, a declining asset turnover ratio (2021: 0.22; 2022: 0.22; 2023: 0.26) indicates reduced efficiency in using assets to generate sales, further complicating the company's operational outlook.
Despite the allure of a low stock price relative to its GF Value, the concerning signals from Twist Bioscience's financial indicators cannot be overlooked. The Piotroski F-score, along with other financial metrics, paints a picture of a company that may be struggling to maintain financial stability and operational efficiency. These factors, taken together, suggest that Twist Bioscience could indeed be a value trap, and investors should approach with caution.
For investors seeking stronger financial health indicators, the Piotroski F-score screener available to GuruFocus Premium members can be a valuable resource for identifying stocks with high Piotroski F-scores.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
