One of Wall Street's biggest winners of the day is Elanco Animal Health, a company whose shares have climbed 7.4% to a price of $12.51 -- 5.3% below its average analyst target price of $13.21.
The average analyst rating for the stock is hold. ELAN may have outstripped the S&P 500 index by 6.0% so far today, but it has lagged behind the index by 47.0% over the last year, returning -37.0%.
Elanco Animal Health Incorporated, an animal health company, innovates, develops, manufactures, and markets products for pets and farm animals.
Elanco Animal Health does not release its trailing 12 month P/E ratio since its earnings per share of $-0.05 are negative over the last year. But we can calculate it ourselves, which gives us a trailing P/E ratio for ELAN of -250.2. Based on the company's positive earnings guidance of $0.89, the stock has a forward P/E ratio of 14.1.
ELAN’s price to earnings ratio can be divided by its projected five-year growth rate, to give us the price to earnings, or PEG ratio. This allows us to put its earnings valuation in the context of its growth expectations which is useful because companies with low P/E ratios often have low growth, which means they actually do not present an attractive value.
When we perform the calculation for Elanco Animal Health, we obtain a PEG ratio of 2.09, which indicates that the company is overvalued compared to its growth prospects. The weakness with PEG ratios is that they rely on expected growth estimates, which of course may not turn out as expected.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (market value divided by book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method.
Elanco Animal Health's P/B ratio of 0.82 indicates that the market value of the company is less than the value of its assets -- a potential indicator of an undervalued stock.
