Pharmaceutical company Roivant Sciences is standing out today, surging to $10.87 and marking a 3.8% change. In comparison the S&P 500 moved only 0.0%. ROIV is -30.49% below its average analyst target price of $15.63, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, Roivant Sciences shares have outperformed the S&P 500 by 189.0%, with a price change of 194.0%.
Roivant Sciences Ltd., a commercial-stage biopharmaceutical company, engages in the development and commercialization of medicines for inflammation and immunology areas. The company is part of the healthcare sector. Healthcare companies work in incredibly complex markets, and their valuations can change in an instant based on a denied drug approval, a research and development breakthrough at a competitor, or a new government regulation. In the longer term, healthcare companies are affected by factors as varied as demographics and epidemiology. Investors who want to understand the healthcare market should be prepared for deep dives into a wide range of topics.
Roivant Sciences does not publish either its forward or trailing P/E ratios because their values are negative -- meaning that each share of stock represents a net earnings loss. But we can calculate these P/E ratios anyways using the stocks forward and trailing (EPS) values of $-1.16 and $-1.58. We can see that ROIV has a forward P/E ratio of -9.4 and a trailing P/E ratio of -6.9.
As of the first quarter of 2023, the average Price to Earnings (P/E) ratio for US health care companies is 24.45, and the S&P 500 has an average of 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
To better understand the strength of Roivant Sciences's business, we can analyse its operating margins, which are its revenues minus its operating costs. Consistently strong margins backed by a positive trend can signal that a company is on track to deliver returns for its shareholders. Here's the operating margin statistics for the last four years:
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-03-31 | 61,280 | 1,125,721 | -1758.44 | 19.77 |
| 2022-03-31 | 55,286 | 1,258,068 | -2191.78 | -9.85 |
| 2021-03-31 | 23,795 | 496,504 | -1995.23 | n/a |
- Average operating margins: -1981.8 %
- Average operating margins growth rate: 4.1 %
- Coefficient of variability (lower numbers indicate less volatility): 10.9 %
Another key to assessing a company's health is to look at its free cash flow, which is calculated on the basis of its total cash flow from operating activities minus its capital expenditures. Capital expenditures are the costs of maintaining fixed assets such as land, buildings, and equipment. From Roivant Sciences's last four annual reports, we are able to obtain the following rundown of its free cash flow:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-03-31 | -843,393 | -12,690 | -856,083 | -23.15 |
| 2022-03-31 | -677,729 | -17,436 | -695,165 | -24.59 |
| 2021-03-31 | -552,138 | -5,806 | -557,944 | n/a |
- Average free cash flow: $-703064000.0
- Average free cash flown growth rate: -15.3 %
- Coefficient of variability (the lower the better): 21.2 %
If it weren't negative, the free cash flow would represent the amount of money available for reinvestment in the business, or for payments to equity investors in the form of a dividend. While a negative cash flow for one or two quarters is not a sign of financial troubles for ROIV, a long term trend of negative or highly erratic cash flow levels may indicate a struggling business or a mismanaged company.
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.
Roivant Sciences's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 7, so the company's assets may be overvalued compared to the average P/B ratio of the Health Care sector, which stands at 4.16 as of the first quarter of 2023.
Roivant Sciences is by most measures overvalued because it has a negative P/E ratio, an elevated P/B ratio, and negative cash flows with a downwards trend. The stock has mixed growth prospects because it has a a negative PEG ratio and consistently poor operating margins with a stable trend. We hope you enjoyed this overview of ROIV's fundamentals.
