- By GF Value
The stock of vTv Therapeutics (NAS:VTVT, 30-year Financials) appears 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 $3.44 per share and the market cap of $277.5 million, vTv Therapeutics stock gives every indication of being significantly overvalued. GF Value for vTv Therapeutics is shown in the chart below.
Because vTv Therapeutics is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 65.5% over the past five years.
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. vTv Therapeutics has a cash-to-debt ratio of 6.28, which which ranks in the middle range of the companies in Biotechnology industry. The overall financial strength of vTv Therapeutics is 3 out of 10, which indicates that the financial strength of vTv Therapeutics is poor. This is the debt and cash of vTv Therapeutics 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. vTv Therapeutics has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $6.4 million and loss of $0.19 a share. Its operating margin is -184.78%, which ranks in the middle range of the companies in Biotechnology industry. Overall, the profitability of vTv Therapeutics is ranked 3 out of 10, which indicates poor profitability. This is the revenue and net income of vTv 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 vTv Therapeutics is 65.5%, which ranks better than 90% of the companies in Biotechnology industry. The 3-year average EBITDA growth is 63.4%, which ranks better than 94% 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, vTv Therapeutics's ROIC is -126.94 while its WACC came in at -11.79. The historical ROIC vs WACC comparison of vTv Therapeutics is shown below:
In summary, the stock of vTv Therapeutics (NAS:VTVT, 30-year Financials) is estimated to be significantly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks better than 94% of the companies in Biotechnology industry. To learn more about vTv Therapeutics stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.