Roivant Sciences Investors Score Big Today

Roivant Sciences (ROIV) stock climbed 2.4 % this morning. According to our metrics, the company seems overvalued at today's prices. In the below analysis, we will put Roivant Sciences's valuation in the context of its poor growth indicators and positive market sentiment, which are also strong drivers for share price.

Roivant Sciences Ltd., a commercial-stage biopharmaceutical company, engages in the development and commercialization of medicines for inflammation and immunology areas. The mid-cap Health Care company is based in London, United Kingdom and has 904 full time employees.

ROIV Has a Higher P/E Ratio Than the Sector Average

Compared to the Health Care sector's average of 24.45, Roivant Sciences has a trailing twelve month price to earnings (P/E) ratio of -5.9 and an expected P/E ratio of -7.9. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $-1.48 or forward earnings per share of $-1.11.

Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Roivant Sciences's P/E ratio is higher than its sector average of 24.45, we can deduce that the market is overvaluing the company's earnings.

ROIV Has an Alarming P/B Ratio

The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.

Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since Roivant Sciences's P/B ratio of 7.41 is higher than its sector average of 4.16, such a margin of safety does not exist for the stock.

ROIV's Weak Cash Flow Generation Is Troubling

The table below shows that Roivant Sciences is not generating enough cash. A well run company will generally have cash flows that reflect the strength of its underlying business, and in Roivant Sciences's case, free cash flow is growing at an average rate of -0.0% with a coefficient of variability of 772603987.4%. We can also see that cash flows from operations are evolving at a -0.0% rate, versus 0.0%:

Roivant Sciences Is Not a Profitable Business

If you are looking to make ROIV a long term investment, its weak margins may give you cause for concern. As you can see from the below, the company is generally losing money on each sale it makes. That being said, stock prices in the short term can be independent of a company's margins, and Roivant Sciences's management may be able to make the business profitable in the future.

Roivant Sciences's Gross Margins

Roivant Sciences's Operating Margins

Roivant Sciences's cost of revenue is growing at a rate of -0.0% in contrast to 49.7% for operating expenses. Sales revenues, on the other hand, have experienced a 0.0% growth rate. As a result, the average gross margins growth is -0.0 and the average operating margins growth rate is 42.6, with coefficients of variability of 10.0% and 71.4% respectively.

Roivant Sciences Benefits From Positive Market Signals

The market sentiment regarding Roivant Sciences is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $23.0 to $12.0. ROIV is trading -45.75% away from its target price of $16.22. 7.9% of the company's shares are tied to short positions, and 58.5% of the shares are held by institutional investors.