Cytokinetics Stock Price Drops 4% – Analysis of Its Value

Pharmaceutical company Cytokinetics is taking Wall Street by surprise today, falling to $62.73 and marking a -4.0% change compared to the S&P 500, which moved -0.0%. CYTK is -34.02% below its average analyst target price of $95.06, which implies there is more upside for the stock.

As such, the average analyst rates it at buy. Over the last year, Cytokinetics shares have outstripped the S&P 500 by 50.6%, with a price change of 73.0%.

Cytokinetics, Incorporated, a late-stage biopharmaceutical company, focuses on discovering, developing, and commercializing muscle activators and inhibitors as potential treatments for debilitating 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.

Cytokinetics 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 $-3.29 and $-5.45. We can see that CYTK has a forward P/E ratio of -19.1 and a trailing P/E ratio of -11.5. 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.

One limitation P/E ratios is that they don't tell us to what extent future growth expectations are priced into Cytokinetics 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 Cytokinetics's P/E ratio by its projected 5 year earnings growth rate gives us its Price to Earnings Growth (PEG) ratio of -0.98. 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 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 Cytokinetics's free cash flow, which was $-415749000 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 CYTK's case the cash flow outlook is weak. It's average cash flow over the last 4 years has been $-185955500.0 and they've been growing at an average rate of -33.6%.

Cytokinetics 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 with a negative growth trend, and a negative PEG ratio. We hope this preliminary analysis will encourage you to do your own research into CYTK's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.