Standing out among the Street's worst performers today is Charles River Laboratories International, a biotechnology company whose shares slumped -12.1% to a price of $201.03, 21.1% below its average analyst target price of $254.8.
The average analyst rating for the stock is buy. CRL lagged the S&P 500 index by -12.0% so far today and by -11.3% over the last year, returning 6.0%.
Charles River Laboratories International, Inc. provides drug discovery, non-clinical development, and safety testing services in the United States, Europe, Canada, the Asia Pacific, and internationally. 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.
Charles River Laboratories International's trailing 12 month P/E ratio is 23.6, based on its trailing EPS of $8.51. The company has a forward P/E ratio of 16.3 according to its forward EPS of $12.34 -- which is an estimate of what its earnings will look like in the next quarter. 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 second quarter of 2024, the health care sector has an average P/E ratio of 27.61, and the average for the S&P 500 is 28.21.
To better understand CRL’s valuation, we can divide its price to earnings ratio by its projected five-year growth rate, which gives us its price to earnings, or PEG ratio. Considering the P/E ratio in the context of growth is important, because many companies that are undervalued in terms of earnings are actually overvalued in terms of growth.
Charles River Laboratories International’s PEG is 2.26, which indicates that the company is overvalued compared to its growth prospects. Bear in mind that PEG ratios have limits to their relevance, since they are based on future growth estimates that may not turn out as expected.
When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Charles River Laboratories International was $365.37 Million as of its last annual report. This represents the amount of money that is available for reinvesting in the business, or for paying out to investors in the form of a dividend. With its strong cash flows, CRL is in a position to do either -- which can encourage more investors to place their capital in the company. Over the last four years, the company's free cash flow has been growing at a rate of 36.0% and has on average been $288.27 Million.
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). Charles river laboratories international's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 2.84, but is still below the average P/B ratio of the Health Care sector, which stood at 3.69 as of the second quarter of 2024.
Charles River Laboratories International is likely undervalued at today's prices because it has a Very low P/E ratio, a lower P/B ratio than its sector average, and generally positive cash flows with an upwards trend. The stock has mixed growth prospects because of its weak operating margins with a stable trend, and an inflated PEG ratio. We hope this preliminary analysis will encourage you to do your own research into CRL's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.
