Sarepta Therapeutics was one of the market's biggest losers today, losing 3.2% of its value and underperforming both the S&P500 and Dow Industrial composite indices by 0.0%. The mid-cap Health Care company ended the day at $127.19, but is still well above its 52 week low of $67.54 and is 26.79% below its average target price of $173.74. Over the last 12 months, Sarepta Therapeutics is up 92.4%, and has outperformed the S&P 500 by 76.0%. The stock has an average analyst rating of buy.
Sarepta Therapeutics does not release its trailing 12 month price to earnings (P/E) ratio because its earnings per share of $-12.57 are negative over the last year. Since P/E ratios are the stock's price divided by its earnings per share, a negative EPS number will result in a negative P/E ratio. This doesn't tell us much besides the fact that the company is not currently profitable.
Based on Sarepta Therapeutics's positive earnings guidance of $3.37, its stock has a forward P/E ratio of 37.7. Earnings refer to the net income of the company from its sales operations, and the P/E ratio tells us how much investors are willing to pay for each dollar of these earnings. In comparison, the Health Care sector has historically had an average P/E ratio of 24.45.
Another metric for valuing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present value of the company if it sold all its tangible assets and paid off all debts today. Sarepta Therapeutics's P/B ratio of 16.62 indicates that the market may be overvaluing the company when compared to the average P/B ratio of the Health Care sector, which is 4.16.
Sarepta Therapeutics is likely to attract many investors on the basis of its strong gross margins, which indicate that it either has an exceptional competitive advantage, or that its particular product or services involve very few direct costs:
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 933,013 | 139,989 | 85 | -1.36 |
| 2021-12-31 | 701,887 | 97,049 | 86.17 | -2.37 |
| 2020-12-31 | 540,099 | 63,382 | 88.26 | 3.66 |
| 2019-12-31 | 380,833 | 56,586 | 85.14 | n/a |
- Average gross margins: 86.1 %
- Average gross margins growth rate: -0.0 %
- Coefficient of variability (lower numbers indicate more stability): 1.7 %
Don't let the above fool you. Such high gross margins need to be considered alongside the company's operating margins, which take into account overhead:
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 933,013 | 1,329,225 | -57.47 | 10.3 |
| 2021-12-31 | 701,887 | 1,054,548 | -64.07 | 38.67 |
| 2020-12-31 | 540,099 | 1,040,880 | -104.46 | 23.84 |
| 2019-12-31 | 380,833 | 846,570 | -137.15 | n/a |
- Average operating margins: -90.8 %
- Average operating margins growth rate: 19.5 %
- Coefficient of variability (lower numbers indicate more stability): 41.0 %
We can see that in fact, Sarepta Therapeutics's significant overhead eliminates its profits from sales entirely. The company is not profitable.
Our final point of analysis is Sarepta Therapeutics's free cash flow. While earnings and margins are calculated on the basis of a company's delivered goods, they do not actually represent physical payments that flow into the coffers. The actually money that the company has -- minus its capital expenditures -- is reported as its free cash flow, which for Sarepta Therapeutics is as follows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | -325,346 | -30,824 | -356,170 | 26.05 |
| 2021-12-31 | -443,172 | -38,490 | -481,662 | -2006.52 |
| 2020-12-31 | 107,466 | -82,202 | 25,264 | 104.87 |
| 2019-12-31 | -456,463 | -62,713 | -519,176 | n/a |
- Average free cash flow: $-356170000.0
- Average free cash flow growth rate: 9.0 %
- Coefficient of variability (lower numbers indicating more stability): 74.7%
Free cash flow represents the money that Sarepta Therapeutics can use to either reinvest in the business or to reward its investors in the form of a dividend. Since the company's most recent cash flows are negative, it comes as no surprise that investors do not get a dividend.
Sarepta Therapeutics does not meet the traditional definition of a fairly valued company. Unless the company has strong qualitative factors in its favor, most value investors will probably prefer to avoid this stock.
