BeyondSpring Stock Is Skyrocketing - Is It Too Hot to Handle?

Biotechnology company BeyondSpring is standing out today, surging to $1.0 and marking a 32.0% change. In comparison the S&P 500 moved only 0.8%. BYSI is -56.53% below its average analyst target price of $2.3, which implies there is more upside for the stock. However, the average analayst rating for the stock is underperform -- a more pessimistic outlook than you might expect. Over the last year, BeyondSpring has underperfomed the S&P 500 by 67.5%, moving -81.4%.

BeyondSpring Inc., a clinical stage biopharmaceutical company, together with its subsidiaries, focuses on the development of cancer therapies. The company is part of the healthcare sector. Healthcare companies work in incredibly complex markets, and their valuations can change in an instant based on a denied drug approval, a research and development breakthrough at a competitor, or a new government regulation. In the longer term, healthcare companies are affected by factors as varied as demographics and epidemiology. Investors who want to understand the healthcare market should be prepared for deep dives into a wide range of topics.

BeyondSpring 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 $-2.49 and $-1.65. We can see that BYSI has a forward P/E ratio of -0.4 and a trailing P/E ratio of -0.6.

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.

The main limitation with P/E ratios is that they don't take into account the growth of earnings. This means that a company with a higher than average P/E ratio may still be undervalued if it has high projected earnings growth. Conversely, a company with a low P/E ratio may not present a good value proposition if its projected earnings are stagnant.

When we divide BeyondSpring's P/E ratio by its projected 5 year earnings growth rate, we obtain its Price to Earnings Growth (PEG) ratio of 0.01. Since a PEG ratio of 1 or less may indicate that the company's valuation is proportionate to its growth potential, we see here that investors are undervaluing BYSI's growth potential.

To better understand the strength of BeyondSpring's business, we can analyse its operating margins, which are its revenues minus its operating costs. Consistently strong margins backed by a positive trend can signal that a company is on track to deliver returns for its shareholders. Here's the operating margin statistics for the last four years:

Date Reported Total Revenue ($) Operating Expenses ($) Operating Margins (%) YoY Growth (%)
2021-12-31 1,351,000.0 67,591,000.0 -4903.03 86.26
2020-12-31 180,000.0 64,391,000.0 -35672.8 n/a
2019-12-31 0.0 40,307,000.0 -inf n/a
2018-12-31 0.0 57,545,000.0 -inf n/a
  • Average operating margins growth rate: 28.8 %

BeyondSpring's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to the company's operating cash flows minus its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:

Date Reported Cash Flow from Operations ($) Capital expenditures ($) Free Cash Flow ($) YoY Growth (%)
2021-12-31 -47,242,000.0 -2,844,000.0 -50,086,000.0 -14.36
2020-12-31 -43,745,000.0 -52,000.0 -43,797,000.0 9.07
2019-12-31 -48,162,000.0 -4,000.0 -48,166,000.0 -19.93
2018-12-31 -39,955,000.0 -207,000.0 -40,162,000.0 n/a
  • Average free cash flow: $-45,552,750.00
  • Average free cash flown growth rate: -8.4 %
  • Coefficient of variability (lower numbers indicating more stability): 9.8 %

If it weren't negative, the free cash flow would represent the amount of money available for reinvestment in the business, or for payments to equity investors in the form of a dividend. While a negative cash flow for one or two quarters is not a sign of financial troubles for BYSI, a long term trend of negative or highly erratic cash flow levels may indicate a struggling business or a mismanaged company.

Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (market value divided by book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method.

BeyondSpring has a P/B ratio of 1.5. This indicates that the market value of the company exceeds its book value by a factor of more than 1, 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.

BeyondSpring is by most measures overvalued 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 mixed growth indicators because it has a a PEG ratio of less than 1 and weak operating margins with a positive growth rate. We hope you enjoyed this overview of BYSI's fundamentals.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.