BeiGene shares slumped -11.7% during today's morning session to a price of $149.54, 43.9% below their average analyst target price of $266.55.
The average analyst rating for the stock is buy. BGNE lagged the S&P 500 index by -12.2% so far today and by -38.5% over the last year, returning -56.3%.
BeiGene, Ltd., a biotechnology company, focuses on discovering, developing, manufacturing, and commercializing various medicines worldwide. The company is categorized within the healthcare sector. The catalysts that drive valuations in this sector are complex. From demographics, regulations, scientific breakthroughs, to the emergence of new diseases, healthcare companies see their prices swing on the basis of a variety of factors.
BeiGene does not publish either its forward or trailing P/E ratios because their values are negative -- meaning that each share of stock represents a net earnings loss. But we can calculate these P/E ratios anyways using the stocks forward and trailing (Eps) values of $-11.27 and $-20.05. We can see that BGNE has a forward P/E ratio of -13.3 and a trailing P/E ratio of -7.5. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2022, the healthcare sector has an average P/E ratio of 13.21, and the average for the S&P 500 is 15.97.
A significant limitation with the price to earnings analysis is that it doesn’t account for investors’ growth expectations in the company. For example, a company with a low P/E ratio may not actually be a good value if it has little growth potential. Conversely, companies with high P/E ratios may be fairly valued in terms of growth expectations.
When we divide BeiGene's P/E ratio by its projected 5 year earnings growth rate, we see that it has a Price to Earnings Growth (PEG) ratio of -0.3. This tells us that the company is largely undervalued in terms of growth expectations -- but remember, these growth expectations could turn out to be wrong!
To understand the company's long term profitability and market position, we can analyze its operating margins, which are the ratio of its net profits to its revenues. Over the last four years, BeiGene's operating margins have averaged -303.6% and displayed a mean growth rate of -8.1%. These numbers show that the company may not be on the best track.
To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in BeiGene's free cash flow, which was $-1,561,665,000.00 as of its most recent annual report.
Free cash flow represents the amount of money available for reinvestment in the business or for payments to equity investors in the form of a dividend. In BGNE's case the cash flow outlook is weak. It's average cash flow over the last 4 years has been $-1,105,128,750.00 and they've been growing at an average rate of -38.1%.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts). Beigene's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 2.9, but is still below the average P/B ratio of the Healthcare sector, which stood at 4.07 as of the third quarter of 2022.
BeiGene is likely overvalued at today's prices because it has a negative P/E ratio, a lower P/B ratio than the sector average, and a regular stream of negative cash flows with a downwards trend. The stock has poor growth indicators because of its negative operating margins with high variability that are shrinking, and a negative PEG ratio. We hope this preliminary analysis will encourage you to do your own research into BGNE's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.
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