It hasn't been a great morning session for Elanco Animal Health investors, who have watched their shares sink by -1.1% to a price of $11.51. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
Elanco Animal Health Has an Attractive P/B Ratio but a Worrisome P/E Ratio:
Elanco Animal Health Incorporated, an animal health company, innovates, develops, manufactures, and markets products for pets and farm animals. 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, Elanco Animal Health has a trailing 12 month P/E ratio of -50.0 and a P/B ratio of 0.76.
When we divide Elanco Animal Health's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -70.55. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
The Business Is Unprofitable and Its Balance Sheet Is Highly Leveraged:
| 2019-02-13 | 2020-02-28 | 2021-03-01 | 2022-02-28 | 2023-03-01 | |
|---|---|---|---|---|---|
| Revenue (MM) | $3,067 | $3,071 | $3,271 | $4,764 | $4,411 |
| Gross Margins | 49.0% | 52.0% | 49.0% | 55.0% | 56.0% |
| Operating Margins | 10% | 12% | -3% | 6% | 9% |
| Net Margins | 3.0% | 2.0% | -18.0% | -10.0% | -2.0% |
| Net Income (MM) | $86 | $68 | -$574 | -$483 | -$78 |
| Net Interest Expense (MM) | -$30 | -$79 | -$150 | -$236 | -$241 |
| Depreciation & Amort. (MM) | -$296 | -$314 | -$517 | -$716 | -$682 |
| Earnings Per Share | $0.28 | $0.18 | -$1.3 | -$0.99 | -$0.16 |
| EPS Growth | n/a | -35.71% | -822.22% | 23.85% | 83.84% |
| Diluted Shares (MM) | 314 | 370 | 441 | 487 | 487 |
| Free Cash Flow (MM) | $614 | $421 | $198 | $663 | $636 |
| Capital Expenditures (MM) | -$127 | -$197 | -$239 | -$180 | -$184 |
| Net Current Assets (MM) | -$1,254 | -$1,066 | -$5,800 | -$5,696 | -$4,923 |
| Long Term Debt (MM) | $2,443 | $2,330 | $5,572 | $6,025 | $5,448 |
| Net Debt / EBITDA | 3.28 | 2.95 | 12.95 | 5.57 | 5.15 |
Elanco Animal Health's financial statements include several red flags such as slimmer gross margins than its peers, weak operating margins with a stable trend, and declining EPS growth. Additionally, the firm has a highly leveraged balance sheet. Elanco Animal Health has weak revenue growth and a flat capital expenditure trend, irregular cash flows, and a decent current ratio.
