ROIV Drops 8.7% – Are They Near Intrinsic Value?

Pharmaceutical company Roivant Sciences is taking Wall Street by surprise today, falling to $11.51 and marking a -8.7% change compared to the S&P 500, which moved 1.0%. ROIV is -26.36% 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 outstripped the S&P 500 by 190.0%, with a price change of 201.0%.

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 $-1.18 and $-1.58. We can see that ROIV has a forward P/E ratio of -9.8 and a trailing P/E ratio of -7.3. 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 understand the company's long term profitability and market position, we can analyze its operating margins, which are the ratio of its net profits to its revenues. Over the last four years, Roivant Sciences's operating margins have averaged -1326.0% and displayed a mean growth rate of 42.6%. These numbers show that the company may not be on the best track.

When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Roivant Sciences was $-660293000 as of its last annual report. Free cash flow represents the amount of money available for reinvestment in the business or for payments to equity investors in the form of a dividend. In ROIV's case the cash flow outlook is weak. It's average cash flow over the last 4 years has been $-603312500.0 and they've been growing at an average rate of -0.0%.

Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its 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 is 9.7 -- in other words, the market value of the company exceeds its book value by a factor of more than 9, 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.

Since it has a negative P/E ratio, an elevated P/B ratio, and an unconvincing cash flow history with a flat trend, Roivant Sciences is likely overvalued at today's prices. The company has poor growth indicators because of no PEG ratio and consistently negative margins with a positive growth rate. We hope you enjoyed this overview of ROIV's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.