Biotechnology company ICON is taking Wall Street by surprise today, falling to $174.88 and marking a -3.0% change compared to the S&P 500, which moved -0.0%. ICLR is -19.34% below its average analyst target price of $216.8, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, ICON has underperfomed the S&P 500 by -58.5%, moving -43.7%.
ICON Public Limited Company, a clinical research organization, provides outsourced development and commercialization services in Ireland, rest of Europe, the United States, and internationally. 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.
ICON's trailing 12 month P/E ratio is 18.0, based on its trailing EPS of $9.72. The company has a forward P/E ratio of 12.3 according to its forward EPS of $15.07 -- which is an estimate of what its earnings will look like in the next quarter. 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 ICON's free cash flow, which was $239.33 Million 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 ICLR's case the cash flow outlook is weak. It's average cash flow over the last 4 years has been $676.99 Million and they've been growing at an average rate of -17.6%.
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). Icon's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 1.42, but is still below the average P/B ratio of the Health Care sector, which stood at 3.19 as of the third quarter of 2024.
ICON is likely overvalued at today's prices because it has a Very low P/E ratio, a lower P/B ratio than its sector average, and positive cash flows with a downwards trend. The stock has poor growth indicators because of its weak operating margins with a stable trend, and an average PEG ratio. We hope this preliminary analysis will encourage you to do your own research into ICLR's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.
