Exact Sciences Stock Is Skyrocketing - Is It Too Hot to Handle?

Shares of Exact Sciences (EXAS) jumped 21.2 % during today's morning session, bringing their 52 week performance to -36.6%. Exact Sciences Corporation provides cancer screening and diagnostic test products in the United States and internationally. The mid-cap Healthcare company is based in Madison, United States and has 6,420 full time employees.

EXAS Has a Higher P/E Ratio Than the Sector Average

Compared to the Healthcare sector's average of 13.21, Exact Sciences has a trailing twelve month price to earnings (P/E) ratio of -13.2 and an expected P/E ratio of -21.9. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $-4.33 or forward earnings per share of $-2.61.

Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Exact Sciences's P/E ratio is higher than its sector average of 13.21, we can deduce that the market is overvaluing the company's earnings.

EXAS Has an Average P/B Ratio

Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.

Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For Exact Sciences, the P/B value is 3.3 while the average for the Healthcare sector is 4.07.

EXAS's Weak Cash Flow Generation Is Troubling

The table below shows that Exact Sciences is not generating enough cash. A well run company will generally have cash flows that reflect the strength of its underlying business, and in Exact Sciences's case, free cash flow is growing at an average rate of -152.4% with a coefficient of variability of 129.0%. We can also see that cash flows from operations are evolving at a 21.9% rate, versus 24.2%:

Date Reported Cash Flow from Operations ($ MM) Capital expenditures ($ MM) Free Cash Flow ($ MM) YoY Growth (%)
2021-12-31 -102 -136 -238 -429.96
2020-12-31 136 -64 72 125.15
2019-12-31 -115 -172 -287 n/a

Exact Sciences Is Not a Profitable Business

If you are looking to make EXAS a long term investment, its weak margins may give you cause for concern. As you can see from the below, the company is generally losing money on each sale it makes. That being said, stock prices in the short term can be independent of a company's margins, and Exact Sciences's management may be able to make the business profitable in the future.

Exact Sciences's Gross Margins

Date Reported Revenue ($ MM) Cost of Revenue ($ MM) Gross Margins (%) YoY Growth (%)
2021-12-31 1,767 459 74.04 -2.89
2020-12-31 1,491 354 76.24 1.29
2019-12-31 876 217 75.27 n/a

Exact Sciences's Operating Margins

Date Reported Total Revenue ($ MM) Operating Expenses ($ MM) Operating Margins (%) YoY Growth (%)
2021-12-31 1,767 2,144 -47.28 -26.28
2020-12-31 1,491 1,695 -37.44 -40.33
2019-12-31 876 893 -26.68 n/a

Exact Sciences's cost of revenue is growing at a rate of 46.5% in contrast to 58.1% for operating expenses. Sales revenues, on the other hand, have experienced a 44.3% growth rate. As a result, the average gross margins growth is -0.8 and the average operating margins growth rate is -33.3, with coefficients of variability of 1.5% and 27.7% respectively.

We See Mixed Market Signals Regarding EXAS

Exact Sciences has an average rating of buy and target prices ranging from $95 to $35. At its current price of $57.19, the company is trading -5.47% away from its target price of $60.5. 6.3% of the company's shares are linked to short positions, and 89.1% of the shares are owned by institutional investors.

Holder Shares Date Reported Percentage Value
ARK Investment Management, LLC 17,561,702 2022-09-29 10% $1,003,826,883
Vanguard Group, Inc. (The) 16,676,611 2022-09-29 9% $953,235,082
Wellington Management Group, LLP 11,227,634 2022-09-29 6% $641,771,557
Blackrock Inc. 10,437,938 2022-09-29 6% $596,632,534
Sumitomo Mitsui Trust Holdings, Inc. 6,517,145 2022-09-29 4% $372,520,007
Nikko Asset Management Americas, Inc. 6,028,620 2022-09-29 3% $344,595,918
Price (T.Rowe) Associates Inc 5,814,177 2022-09-29 3% $332,338,356
State Street Corporation 5,330,749 2022-09-29 3% $304,705,612
Capital World Investors 4,993,689 2022-09-29 3% $285,439,262
Baillie Gifford and Company 4,813,237 2022-09-29 3% $275,124,626
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.