Standing out among the Street's worst performers today is Insmed, a pharmaceutical company whose shares slumped -3.2% to a price of $71.24, 26.39% below its average analyst target price of $96.78.
The average analyst rating for the stock is buy. INSM underperformed the S&P 500 index by -3.0% during today's afternoon session, but outpaced it by 11.0% over the last year with a return of 22.9%.
Insmed Incorporated develops and commercializes therapies for patients with serious and rare diseases in the United States, Europe, Japan, and internationally. The company offers ARIKAYCE for the treatment of refractory nontuberculous mycobacterial lung infections, as well as is in phase 3 clinical trial for the treatment of mycobacterium avium complex lung disease as part of a combination antibacterial drug regimen for adult patients. The company is categorized within the healthcare sector. The catalysts that drive valuations in this sector are complex. From demographics, regulations, scientific breakthroughs, to the emergence of new diseases, healthcare companies see their prices swing on the basis of a variety of factors.
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 $-5.93. We can see that INSM has a forward P/E ratio of -16.8 and a trailing P/E ratio of -12.0. As of the third quarter of 2024, the average Price to Earnings (P/E) ratio for US health care companies is 22.94, and the S&P 500 has an average of 29.3. 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.
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 Insmed's free cash flow, which was $-705805000 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 INSM's case the cash flow outlook is weak. It's average cash flow over the last 4 years has been $-425792166.7 and they've been growing at an average rate of -19.2%.
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). Insmed's P/B ratio is 130.72 -- in other words, the market value of the company exceeds its book value by a factor of more than 130, so the company's assets may be overvalued compared to the average P/B ratio of the Health Care sector, which stands at 3.19 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 with a negative growth trend. 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.
