Today shares of Apellis Pharmaceuticals have fallen -3.19%, to a price of $63.39. Since it has an average rating of buy, many investors will be using today as an opportunity to buy the dip. But what if the stock is overvalued? Don't blindly trust analyst ratings before looking at the fundamentals yourself!
The most common valuation metric for stocks is the trailing price to earnings (P/E) ratio. Apellis Pharmaceuticals has a P/E ratio of -10.6 based on its 12 month trailing earnings per share of $-5.98. Considering its future earnings estimates of $-3.24 per share, the stock's forward P/E ratio is -19.56. In comparison, the average P/E ratio of the Basic Materials sector is 10.03 and the average P/E ratio of the S&P 500 is 15.97.
We can also compare the ratio of Apellis Pharmaceuticals's market price to its book value, which gives us the price to book, or P/B ratio. A company's book value refers to its present liquidation value -- or what would be left if the company sold off all its assets and paid off all of its debts today. Importantly, the book value does not include intangible assets such as the value of its brand and the goodwill of its customers. APLS has a P/B ratio of 17.67, with any figure close to or below one indicating a potentially undervalued company.
Now we turn to the actual cash that Apellis Pharmaceuticals has on hand after all of its inflows and outflows of capital have been accounted for -- including non business related items such as the cost of maintaining its debt. This final bottom line is called levered free cash flow, and for Apellis Pharmaceuticals it stands at -$. This negative cash flow could mean the company may not be able to sustain its 0.0% dividend for much longer.
At Market Inference, we will keep monitoring Apellis Pharmaceuticals to see if the analysts were right to recommend the stock despite its valuation issues. We recognize that numbers don't always tell the whole story, and that qualitative factors often set high performing investments apart from the rest.