Is Akebia Therapeutics Inc (AKBA) Set to Underperform? Analyzing the Factors Limiting Growth
Long-established in the Biotechnology industry, Akebia Therapeutics Inc (NASDAQ:AKBA) has enjoyed a stellar reputation. It has recently witnessed a surge of 20.78%, juxtaposed with a three-month change of 19.52%. However, fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Akebia Therapeutics Inc.
What Is the GF Score?
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
1. Financial strength rank: 3/10
2. Profitability rank: 2/10
3. Growth rank: 3/10
4. GF Value rank: 10/10
5. Momentum rank: 3/10
Based on the above method, GuruFocus assigned Akebia Therapeutics Inc the GF Score of 58 out of 100, which signals poor future outperformance potential.
Understanding Akebia Therapeutics Inc Business
Akebia Therapeutics Inc is a fully integrated biopharmaceutical company with a market cap of $258.26 million and sales of $271.03 million. The company operates in the business of developing and commercializing novel therapeutics for people with kidney disease. Its portfolio includes Auryxia (ferric citrate), a medicine approved and marketed in the United States for the control of serum phosphorus levels in adult patients with dialysis-dependent chronic kidney disease and the treatment of iron deficiency anemia, in adult patients with non-dialysis-dependent chronic kidney disease. Vafseo (vadadustat), an oral hypoxia-inducible factor prolyl hydroxylase, is approved in Japan for the treatment of anemia due to chronic kidney disease, in adult patients. The company also has HIF-PH inhibitors in preclinical development.
Financial Strength Breakdown
Akebia Therapeutics Inc's financial strength indicators present some concerning insights about the company's balance sheet health. The company has an interest coverage ratio of 0, which positions it worse than 0% of 381 companies in the Biotechnology industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just -6.93, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.69 indicates a struggle in handling existing debt levels. Furthermore, the company's debt-to-Ebitda ratio is 11.51, which is above Joel Tillinghast's warning level of 4 and is worse than 92.74% of 248 companies in the Biotechnology industry. Tillinghast said in his book Big Money Think's Small: Biases, Blind Spots, and Smarter Investing that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Profitability Breakdown
Akebia Therapeutics Inc's low Profitability rank can also raise warning signals. The company's Gross Margin has also declined over the past five years, as evidenced by the data: 2018: 96.26; 2019: 56.62; 2020: -0.20; 2021: 28.18; 2022: 71.02. This trend underscores the company's struggles to convert its revenue into profits.
Growth Prospects
A lack of significant growth is another area where Akebia Therapeutics Inc seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -17.3 per year over the past three years, which underperforms worse than 76.08% of 765 companies in the Biotechnology industry. Stagnating revenues may pose concerns in a fast-evolving market. Lastly, Akebia Therapeutics Inc predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Next Steps
Given the company's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights the firm's unparalleled position for potential underperformance. Investors should exercise caution and conduct further research before making investment decisions. GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen.
This article first appeared on GuruFocus.
