Halozyme Therapeutics Stock Is Skyrocketing - Is It Too Hot to Handle?

Biotechnology company Halozyme Therapeutics is standing out today, surging to $41.03 and marking a 5.4% change. In comparison the S&P 500 moved only 0.0%. HALO is -20.79% below its average analyst target price of $51.8, which implies there is more upside for the stock.

As such, the average analyst rates it at buy. Over the last year, Halozyme Therapeutics has underperfomed the S&P 500 by 18.0%, moving -3.0%.

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 company is categorized within the healthcare sector. The catalysts that drive valuations in this sector are complex. From demographics, regulations, scientific breakthroughs, to the emergence of new diseases, healthcare companies see their prices swing on the basis of a variety of factors.

Halozyme Therapeutics's trailing 12 month P/E ratio is 23.3, based on its trailing EPS of $1.76. The company has a forward P/E ratio of 11.1 according to its forward EPS of $3.7 -- which is an estimate of what its earnings will look like in the next quarter.

The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the first quarter of 2023, the health care sector has an average P/E ratio of 24.45, and the average for the S&P 500 is 15.97.

The main limitation with P/E ratios is that they don't take into account the growth of earnings. This means that a company with a higher than average P/E ratio may still be undervalued if it has high projected earnings growth. Conversely, a company with a low P/E ratio may not present a good value proposition if its projected earnings are stagnant.

When we divide Halozyme Therapeutics's P/E ratio by its projected 5 year earnings growth rate, we obtain its Price to Earnings Growth (PEG) ratio of 0.56. Since a PEG ratio of 1 or less may indicate that the company's valuation is proportionate to its growth potential, we see here that investors are undervaluing HALO's growth potential .

To better understand the strength of Halozyme Therapeutics'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 (%)
2023-02-21 660,116 -253,281 41 -33.87
2022-02-22 443,310 -85,995 62 14.81
2021-02-23 267,594 -79,972 54 258.82
2020-02-24 195,992 -218,056 -34 26.09
2019-02-21 151,862 -211,056 -46 -276.92
2018-02-20 316,613 -204,459 26
  • Average operating margins: 17.2 %
  • Average operating margins growth rate: 7.7 %
  • Coefficient of variability (lower numbers indicate less volatility): 268.5 %

Halozyme Therapeutics's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to the company's operating cash flows minus its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) Free Cash Flow ($ k) YoY Growth (%)
2023-02-21 240,110 21,196 218,914 -27.25
2022-02-22 299,440 -1,457 300,897 428.98
2021-02-23 55,454 -1,428 56,882 169.89
2020-02-24 -85,423 -4,040 -81,383 -81.51
2019-02-21 -49,500 -4,663 -44,837 -133.11
2018-02-20 134,053 -1,350 135,403
  • Average free cash flow: $97.65 Million
  • Average free cash flown growth rate: 0.0 %
  • Coefficient of variability (lower numbers indicating more stability): 250929468.8 %

Free cash flow represents the amount of money that is available for reinvesting in the business, or for paying out to investors in the form of a dividend. With a positive cash flow as of the last fiscal year, HALO is in a position to do either -- which can encourage more investors to place their capital in the company.

Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts.

Halozyme Therapeutics's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 35, 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.

Halozyme Therapeutics is by most measures overvalued because it has an average P/E ratio, an elevated P/B ratio, and irregular cash flows with a flat trend. The stock has strong growth indicators because it has a an inflated PEG ratio and average net margins with a positive growth rate. We hope you enjoyed this overview of HALO's fundamentals.

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.