Pharmaceutical company BridgeBio Pharma is taking Wall Street by surprise today, falling to $36.07 and marking a -4.0% change compared to the S&P 500, which moved 1.0%. BBIO is -23.98% below its average analyst target price of $47.45, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, BridgeBio Pharma shares have outstripped the S&P 500 by 325.2%, with a price change of 345.6%.
BridgeBio Pharma, Inc. engages in the discovery, development, and delivery of various medicines for genetic 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.
BridgeBio Pharma 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 $-3.42 and $-3.91. We can see that BBIO has a forward P/E ratio of -10.5 and a trailing P/E ratio of -9.2. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the first quarter of 2023, the health care sector has an average P/E ratio of 30.21, and the average for the S&P 500 is 15.97.
A significant limitation with the price to earnings analysis is that it doesn’t account for investors’ growth expectations in the company. For example, a company with a low P/E ratio may not actually be a good value if it has little growth potential. Conversely, companies with high P/E ratios may be fairly valued in terms of growth expectations.
When we divide BridgeBio Pharma's P/E ratio by its projected 5 year earnings growth rate, we see that it has a Price to Earnings Growth (PEG) ratio of 0.17. This tells us that the company is largely undervalued in terms of growth expectations -- but remember, these growth expectations could turn out to be wrong!
When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for BridgeBio Pharma was $-497816000 as of its last 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 BBIO's case the cash flow outlook is weak. It's average cash flow over the last 4 years has been $-419353600.0 and they've been growing at an average rate of -8.6%.
BridgeBio Pharma is likely overvalued at today's prices because it has a negative P/E ratio, no published P/B ratio, and negative cash flows with a downwards trend. The stock has poor growth indicators because of its consistently negative 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 BBIO's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.
