Standing out among the Street's worst performers today is Intra-Cellular Therapies, a pharmaceutical company whose shares slumped -4.5% to a price of $46.37, 40.42% below its average analyst target price of $77.83.
The average analyst rating for the stock is buy. ITCI lagged the S&P 500 index by -5.0% so far today and by -7.0% over the last year, returning 2.0%.
Intra-Cellular Therapies, Inc., a biopharmaceutical company, focuses on the discovery, clinical development, and commercialization of small molecule drugs that address medical needs primarily in neuropsychiatric and neurological disorders by targeting intracellular signaling mechanisms in the central nervous system (CNS) in the United States. 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.
Intra-Cellular Therapies 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 $-0.65 and $-1.93. We can see that ITCI has a forward P/E ratio of -71.3 and a trailing P/E ratio of -24.0. 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.
One limitation P/E ratios is that they don't tell us to what extent future growth expectations are priced into Intra-Cellular Therapies market valuation. For example, a company with a low P/E ratio may not actually be a good value if it has little growth potential. On the other hand, it's possible for companies with high P/E ratios to be fairly valued in terms of their growth expectations.
Dividing Intra-Cellular Therapies's P/E ratio by its projected 5 year earnings growth rate gives us its Price to Earnings Growth (PEG) ratio of -0.25. Since it's negative, either the company's current P/E ratio or its growth rate is negative -- neither of which is a good sign.
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, Intra-Cellular Therapies's operating margins have averaged -51382.8% and displayed a mean growth rate of 69.5%. These numbers show that the company may not be on the best track.
To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in Intra-Cellular Therapies's free cash flow, which was $-189501000 as of its most recent 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 ITCI's case the cash flow outlook is weak. It's average cash flow over the last 4 years has been $-199653002.8 and they've been growing at an average rate of -8.1%.
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. Intra-cellular therapies's P/B ratio is 7.34 -- in other words, the market value of the company exceeds its book value by a factor of more than 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.
Since it has a negative P/E ratio, an elevated P/B ratio, and an unconvincing cash flow history with a downwards trend, Intra-Cellular Therapies is likely overvalued at today's prices. The company has poor growth indicators because of no PEG ratio and consistently poor operating margins with a positive growth rate. We hope you enjoyed this overview of ITCI's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.
