It's been a great afternoon session for United Therapeutics investors, who saw their shares rise 8.6% to a price of $348.63 per share. At these higher prices, is the company still fairly valued? If you are thinking about investing, make sure to check the company's fundamentals before making a decision.
a Lower P/B Ratio Than Its Sector Average but Priced Beyond Its Margin of Safety:
United Therapeutics Corporation, a biotechnology company, engages in the development and commercialization of products to address the unmet medical needs of patients with chronic and life-threatening diseases in the United States and internationally. The company belongs to the Health Care sector, which has an average price to earnings (P/E) ratio of 27.61 and an average price to book (P/B) ratio of 3.69. In contrast, United Therapeutics has a trailing 12 month P/E ratio of 16.0 and a P/B ratio of 2.72.
P/E rations can be placed into context by dividing them by the firm's expected 5-year EPS growth rate, which gives us its Price to Earnings Growth (PEG) ratio. United Therapeutics's PEG ratio is 1.05, which tells us the company is fairly valued in terms of growth. PEG ratios under 1 are considered an indicator of undervalued growth, but we need to keep in mind that many successful companies with excellent share performance have maintained much higher PEG ratios.
As always, a quantitative approach to a stock should be supplemented with a look at qualitative factors, such as the competence of its management team, quality of its corporate culture, and the wide variety of social and economic factors that can impact the success of its product.
Wider Gross Margins Than the Industry Average of 59.67%:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $1,628 | $1,449 | $1,483 | $1,686 | $1,936 | $2,328 |
| Gross Margins | n/a | 92.0% | 93.0% | 93.0% | 92.0% | 89.0% |
| Net Margins | 36% | -7% | 35% | 28% | 38% | 42% |
| Net Income (M) | $589 | -$104 | $515 | $476 | $727 | $985 |
| Net Interest Expense (M) | $14 | $44 | $24 | $19 | $32 | $59 |
| Depreciation & Amort. (M) | $36 | $46 | $50 | $50 | $51 | $53 |
| Diluted Shares (M) | 44 | 44 | 45 | 47 | 48 | 50 |
| Earnings Per Share | $13.39 | -$2.39 | $11.54 | $10.06 | $15.0 | $19.81 |
| EPS Growth | n/a | -117.85% | 582.85% | -12.82% | 49.11% | 32.07% |
| Avg. Price | $119.05 | $94.38 | $112.26 | $187.86 | $198.58 | $346.84 |
| P/E Ratio | 8.79 | -39.49 | 9.64 | 17.72 | 12.43 | 16.48 |
| Free Cash Flow (M) | $594 | -$290 | $696 | $477 | $664 | $748 |
| CAPEX (M) | $184 | $84 | $59 | $121 | $139 | $230 |
| Current Ratio | 6.39 | 4.03 | 6.7 | 7.61 | 9.85 | 4.41 |
United Therapeutics benefits from growing revenues and increasing reinvestment in the business, generally positive cash flows, and an excellent current ratio of 4.41. The company's financial statements show wider gross margins than its peer group and positive EPS growth.
