We've been asking ourselves recently if the market has placed a fair valuation on Royalty Pharma. Let's dive into some of the fundamental values of this large-cap Health Care company to determine if there might be an opportunity here for value-minded investors.
Royalty Pharma Has an Attractive P/B Ratio but a Worrisome P/E Ratio:
Royalty Pharma plc operates as a buyer of biopharmaceutical royalties and a funder of innovations in the biopharmaceutical industry in the United States. The company belongs to the Health Care sector, which has an average price to earnings (P/E) ratio of 30.21 and an average price to book (P/B) ratio of 4.08. In contrast, Royalty Pharma has a trailing 12 month P/E ratio of 73.1 and a P/B ratio of 2.07.
Royalty Pharma's PEG ratio is 2.08, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
The Company Has Lacking Information on Debt Levels:
| 2018 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|
| Revenue (MM) | $1,795 | $2,122 | $2,289 | $2,237 | $2,324 |
| Revenue Growth | n/a | 18.24% | 7.87% | -2.28% | 3.89% |
| Operating Margins | 85% | 80% | 62% | 14% | 17% |
| Net Margins | 85% | 80% | 54% | 10% | 16% |
| Net Income (MM) | $1,518 | $1,702 | $1,241 | $230 | $372 |
| Net Interest Expense (MM) | $280 | $157 | $166 | $188 | $187 |
| Free Cash Flow (MM) | $1,618 | $2,035 | $2,018 | $2,144 | $2,785 |
Royalty Pharma has growing revenues and no capital expenditures, decent operating margins with a negative growth trend, and irregular cash flows. Furthermore, Royalty Pharma has positive expected EPS Growth.
