It's been a great afternoon session for Exelixis investors, who saw their shares rise 1.6% to a price of $19.34 per share. At these higher prices, is the company still fairly valued? If you are thinking about investing, make sure to check the company's fundamentals before making a decision.
A Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:
Exelixis, Inc., an oncology-focused biotechnology company, focuses on the discovery, development, and commercialization of new medicines to treat cancers in the United States. The company belongs to the Health Care sector, which has an average price to earnings (P/E) ratio of 24.45 and an average price to book (P/B) ratio of 4.16. In contrast, Exelixis has a trailing 12 month P/E ratio of 41.1 and a P/B ratio of 2.46.
P/E rations can be placed into context by dividing them by the firm's expected 5-year EPS growth rate, which gives us its Price to Earnings Growth (PEG) ratio. Exelixis's PEG ratio is 1.09, which tells us the company is fairly valued in terms of growth. PEG ratios under 1 are considered an indicator of undervalued growth, but we need to keep in mind that many successful companies with excellent share performance have maintained much higher PEG ratios.
As always, a quantitative approach to a stock should be supplemented with a look at qualitative factors, such as the competence of its management team, quality of its corporate culture, and the wide variety of social and economic factors that can impact the success of its product.
An Exceptionally Strong Balance Sheet:
| 2019-12-31 | 2020-12-31 | 2021-12-31 | 2022-12-31 | |
|---|---|---|---|---|
| Revenue (MM) | $968 | $988 | $1,435 | $1,611 |
| Operating Margins | 38.2% | 11.1% | 20.0% | 12.5% |
| Net Margins | 33.17% | 11.32% | 16.1% | 11.31% |
| Net Income (MM) | $321 | $112 | $231 | $182 |
| Net Interest Expense (MM) | 28 | 20 | 8 | 33 |
| Net Interest Expense (MM) | $28 | $20 | $8 | $33 |
| Depreciation & Amort. (MM) | -$8 | -$9 | -$14 | -$21 |
| Earnings Per Share | $1.02 | $0.35 | $0.72 | $0.47 |
| EPS Growth | n/a | -65.69% | 105.71% | -34.72% |
| Diluted Shares (MM) | 315 | 318 | 322 | 326 |
| Free Cash Flow (MM) | $514 | $179 | $337 | $224 |
| Capital Expenditures (MM) | -$13 | -$30 | -$64 | -$138 |
| Net Current Assets (MM) | $811 | $1,187 | $1,429 | $1,036 |
| Current Ratio | 7.08 | 7.06 | 5.43 | 4.99 |
| Net Debt / EBITDA | -0.5 | -1.69 | -1.89 | -1.08 |
Exelixis benefits from growing revenues and increasing reinvestment in the business, an excellent current ratio, and low leverage. The company's financial statements show decent operating margins with a negative growth trend and consistent free cash flow. However, the firm has declining EPS growth.
