Pharmaceutical company Insmed is taking Wall Street by surprise today, falling to $66.29 and marking a -7.0% change compared to the S&P 500, which moved -1.0%. INSM is -25.41% below its average analyst target price of $88.87, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, Insmed shares have outstripped the S&P 500 by 140.2%, with a price change of 169.3%.
Insmed Incorporated, a biopharmaceutical company, develops and commercializes therapies for patients with serious and rare diseases in the United States, Europe, Japan, 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.
Insmed 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 $-4.23 and $-5.55. We can see that INSM has a forward P/E ratio of -15.7 and a trailing P/E ratio of -11.9. 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 third quarter of 2024, the health care sector has an average P/E ratio of 26.07, and the average for the S&P 500 is 29.3.
When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Insmed was $-549535000 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 INSM's case the cash flow outlook is weak. It's average cash flow over the last 4 years has been $-353335833.3 and they've been growing at an average rate of -15.2%.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Insmed's P/B ratio is 24.52 -- in other words, the market value of the company exceeds its book value by a factor of more than 24, so the company's assets may be overvalued compared to the average P/B ratio of the Health Care sector, which stands at 3.53 as of the third quarter of 2024.
Since it has a negative P/E ratio., a higher than Average P/B Ratio, and negative cash flows with a downwards trend, Insmed is likely overvalued at today's prices. The company has poor growth indicators because of a negative PEG ratio and weak operating margins with a positive growth rate. We hope you enjoyed this overview of INSM's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.
