One of Wall Street's biggest winners of the day is Charles River Laboratories International, a biotechnology company whose shares have climbed 5.0% to a price of $235.53 -- near its average analyst target price of $230.93.
The average analyst rating for the stock is buy. CRL outperformed the S&P 500 index by 5.0% during today's morning session, and by 9.3% over the last year with a return of 25.7%.
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 does not release its trailing 12 month P/E ratio since its earnings per share of $-3.7 are negative over the last year. But we can calculate it ourselves, which gives us a trailing P/E ratio for CRL of -63.7. Based on the company's positive earnings guidance of $12.33, the stock has a forward P/E ratio of 19.1.
The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2024, the health care sector has an average P/E ratio of 22.94, and the average for the S&P 500 is 29.3.
The main limitation with P/E ratios is that they don't take into account the growth of earnings. This means that a company with a higher than average P/E ratio may still be undervalued if it has high projected earnings growth. Conversely, a company with a low P/E ratio may not present a good value proposition if its projected earnings are stagnant.
When we divide Charles River Laboratories International's P/E ratio by its projected 5 year earnings growth rate, we obtain its Price to Earnings Growth (PEG) ratio of 0.12. Since a PEG ratio of 1 or less may indicate that the company's valuation is proportionate to its growth potential, we see here that investors are undervaluing CRL's growth potential .
Another key to assessing a company's health is to look at its free cash flow, which is calculated on the basis of its total cash flow from operating activities minus its capital expenditures. Capital expenditures are the costs of maintaining fixed assets such as land, buildings, and equipment. From Charles River Laboratories International's last four annual reports, we are able to obtain the following rundown of its free cash flow:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2025 | 737,646 | 219,152 | 518,494 | 3.37 |
| 2024 | 734,577 | 232,967 | 501,610 | 37.29 |
| 2023 | 683,898 | 318,528 | 365,370 | -31.2 |
| 2022 | 619,640 | 88,612 | 531,028 | -0.19 |
| 2021 | 760,799 | 228,772 | 532,027 | 40.0 |
| 2020 | 546,575 | 166,560 | 380,015 |
- Average free cash flow: $471.42 Million
- Average free cash flown growth rate: 2.6 %
- Coefficient of variability (the lower the better): 0.0 %
Free cash flow 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 a positive cash flow as of the last fiscal year, CRL is in a position to do either -- which can encourage more investors to place their capital in the company.
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 3, 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.
With a negative P/E ratio., an average P/B ratio, and generally positive cash flows with a flat trend, we can conclude that Charles River Laboratories International is probably fairly valued at current prices. The stock presents poor growth indicators because of its weak operating margins with a negative growth trend, and no PEG ratio.
