Exact Sciences (EXAS) Is Up 2.3% Today - Is It Still an Opportunity?

Shares of Exact Sciences (EXAS) jumped 2.3 % during today's afternoon session, bringing their 52 week performance to 96.8%. The stock seems to be overvalued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's mixed growth prospects and mixed market sentiment.

Exact Sciences Corporation provides cancer screening and diagnostic test products in the United States and internationally. The mid-cap Health Care company is based in Madison, United States and has 6,300 full time employees.

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

Compared to the Health Care sector's average of 24.45, Exact Sciences has a trailing twelve month price to earnings (P/E) ratio of -29.8 and an expected P/E ratio of -67.5. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $-3.01 or forward earnings per share of $-1.33.

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 24.45, we can deduce that the market is overvaluing the company's earnings.

Exact Sciences Has a Positive Rate of Expected Growth

P/E ratios are limited because they don't tell us how the market is valuing the company's expected earnings growth. One way to solve this problem is to divide the current price to earnings ratio by the company's expected growth rate, which results in the price to eanrings growth, or PEG, ratio. Exact Sciences has a negative PEG ratio of -0.44, and since the company's earnings per share are negative, we can deduce that the expected growth rate is positive. While a negative PEG ratio is never a good sign, investors may fin solace in the positive growth expectations.

EXAS Has an Alarming P/B Ratio

The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.

Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since Exact Sciences's P/B ratio of 5.28 is higher than its sector average of 4.16, such a margin of safety does not exist for the stock.

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 -11.2% with a coefficient of variability of 96.2%. We can also see that cash flows from operations are evolving at a -18.1% rate, versus 5.7%:

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

Exact Sciences's Operating Margins

Exact Sciences's cost of revenue is growing at a rate of 27.6% in contrast to 23.6% for operating expenses. Sales revenues, on the other hand, have experienced a 24.2% growth rate. As a result, the average gross margins growth is -1.0 and the average operating margins growth rate is -1.0, with coefficients of variability of 2.2% and 27.7% respectively.

We See Mixed Market Signals Regarding EXAS

Exact Sciences has an average rating of buy and target prices ranging from $100.0 to $73.0. At its current price of $89.81, the company is trading 1.97% away from its target price of $88.07. 5.5% of the company's shares are linked to short positions, and 88.2% of the shares are owned by institutional investors.