Standing out among the Street's worst performers today is Immunovant, a biotechnology company whose shares slumped -12.8% to a price of $36.18, 26.97% below its average analyst target price of $49.54.
The average analyst rating for the stock is buy. IMVT underperformed the S&P 500 index by -12.0% during today's evening session, but outpaced it by 124.6% over the last year with a return of 147.5%.
Immunovant, Inc., a clinical-stage biopharmaceutical company, develops monoclonal antibodies for the treatment of autoimmune diseases. 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.
Immunovant 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 $-1.92 and $-1.96. We can see that IMVT has a forward P/E ratio of -18.8 and a trailing P/E ratio of -18.5. As of the first quarter of 2023, the average Price to Earnings (P/E) ratio for US health care companies is 30.21, 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.
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 Immunovant's free cash flow, which was $-188390000 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 IMVT's case the cash flow outlook is weak. It's average cash flow over the last 4 years has been $-70465000.0 and they've been growing at an average rate of -46.0%.
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). Immunovant's P/B ratio is 18.88 -- in other words, the market value of the company exceeds its book value by a factor of more than 18, so the company's assets may be overvalued compared to the average P/B ratio of the Health Care sector, which stands at 4.08 as of the first quarter of 2023.
Immunovant is likely overvalued at today's prices because it has a negative P/E ratio, an elevated P/B ratio, and negative cash flows with a downwards trend. The stock has poor growth indicators because of its no published profit margins with a unknown rate of growth, and no PEG ratio. We hope this preliminary analysis will encourage you to do your own research into IMVT's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.
