Shares of Halozyme Therapeutics (HALO) jumped 2.2 % Monday.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 strong growth indicators and mixed market sentiment.
Halozyme Therapeutics, Inc., a biopharma technology platform company, researches, develops, and commercializes proprietary enzymes and devices in the United States, Switzerland, Ireland, Belgium, Japan, and internationally. The mid-cap Health Care company is based in San Diego, United States and has 393 full time employees.
HALO's P/E Ratio Is Comparable to its Sector Average
Compared to the Health Care sector's average of 24.45, Halozyme Therapeutics has a trailing twelve month price to earnings (P/E) ratio of 28.4 and an expected P/E ratio of 10.1. P/E ratios are calculated by dividing the company's share price by either its trailing 12 month ($1.3) or forward earnings per share ($3.65).
Earnings is another term for the net profits left over after subtracting cost 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 Halozyme Therapeutics's P/E ratio is near its sector average of 24.45, we can deduce that the market is fairly valuing the company's earnings.
Halozyme Therapeutics Is Fairly Valued in Terms of Expected Growth
Another factor pointing to Halozyme Therapeutics's value is its PEG ratio of 0.51. This is the stock's price to earnings ratio divided by its estimated earnings growth rate. If the resulting ratio is near or lower than 1 -- but higher than 0 -- its indicates that the company is faitly valued in terms of expected growth.
HALO 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 Halozyme Therapeutics's P/B ratio of 73.76 is higher than its sector average of 4.16, such a margin of safety does not exist for the stock.
HALO Is Generating Cash
Halozyme Therapeutics has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of 39.7%, compared to 4.5% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of 38.0% and a coefficient of variability of 142.0%:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 240,110 | -4,810 | 235,300 | -21.04 |
| 2021-12-31 | 299,440 | -1,457 | 297,983 | 462.76 |
| 2020-12-31 | 55,454 | -2,504 | 52,950 | 159.19 |
| 2019-12-31 | -85,423 | -4,040 | -89,463 | n/a |
Halozyme Therapeutics's Margins Are Strong
If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Halozyme Therapeutics's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.
Halozyme Therapeutics's Gross Margins
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 660,116 | 139,304 | 78.9 | -3.36 |
| 2021-12-31 | 443,310 | 81,413 | 81.64 | -2.57 |
| 2020-12-31 | 267,594 | 43,367 | 83.79 | 9.16 |
| 2019-12-31 | 195,992 | 45,546 | 76.76 | n/a |
Halozyme Therapeutics's Operating Margins
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 660,116 | 253,281 | 40.53 | -34.88 |
| 2021-12-31 | 443,310 | 85,995 | 62.24 | 15.45 |
| 2020-12-31 | 267,594 | 79,972 | 53.91 | 256.26 |
| 2019-12-31 | 195,992 | 218,056 | -34.5 | n/a |
Halozyme Therapeutics's cost of revenue is growing at a rate of 32.2% in contrast to 3.8% for operating expenses. Sales revenues, on the other hand, have experienced a 35.5% growth rate. As a result, the average gross margins growth is 0.7 and the average operating margins growth rate is 21.4, with coefficients of variability of 3.8% and 145.0% respectively.
Halozyme Therapeutics Benefits From Positive Market Signals
The market sentiment regarding Halozyme Therapeutics is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $66.0 to $26.0. HALO is trading -24.05% away from its target price of $48.56. 6.1% of the company's shares are tied to short positions, and 97.7% of the shares are held by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2023-03-31 | Blackrock Inc. | 14% | 18,145,852 | $669,219,041 |
| 2023-03-31 | Vanguard Group, Inc. (The) | 10% | 13,519,639 | $498,604,300 |
| 2023-03-31 | Artisan Partners Limited Partnership | 5% | 6,992,189 | $257,871,937 |
| 2023-03-31 | State Street Corporation | 5% | 5,954,775 | $219,612,108 |
| 2023-03-31 | Snyder Capital Management, LP | 3% | 4,295,184 | $158,406,390 |
| 2023-03-31 | JP Morgan Chase & Company | 3% | 3,522,776 | $129,919,982 |
| 2023-03-31 | Invesco Ltd. | 3% | 3,491,177 | $128,754,611 |
| 2023-03-31 | Macquarie Group Limited | 2% | 3,200,481 | $118,033,742 |
| 2023-03-31 | Geode Capital Management, LLC | 2% | 2,631,387 | $97,045,555 |
| 2023-03-31 | GW&K Investment Management, LLC | 2% | 2,402,115 | $88,590,003 |
