Arcus Biosciences: A Modestly Undervalued Opportunity?
Arcus Biosciences Inc (NYSE:RCUS) recently saw a daily gain of 27.7% and a 3-month gain of 29.03%. However, with a Loss Per Share of 3.96, is the stock truly undervalued? This article provides a comprehensive valuation analysis of Arcus Biosciences, offering insights into its financial strength, profitability, and growth. We invite you to read on and gain a deeper understanding of this intriguing investment opportunity.
Company Overview
Arcus Biosciences Inc is a clinical-stage biopharmaceutical company that focuses on developing immunotherapies for cancer treatment. The company's product pipeline includes Domvanalimab, Etrumadenant, AB680, and Zimberelimab, and it conducts clinical trials for various types of cancer. Arcus Biosciences operates through a single segment, the business of developing and commercializing immunotherapies.
With a current market cap of $1.80 billion and a stock price of $24.02 per share, Arcus Biosciences (NYSE:RCUS) appears to be modestly undervalued when compared to its GF Value of $26.37.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line represents the fair value at which the stock should ideally be trading. If the stock price significantly exceeds the GF Value Line, it is likely overvalued, and its future return could be poor. Conversely, if the stock price is significantly below the GF Value Line, it is likely undervalued, and its future return could be higher.
According to our valuation method, Arcus Biosciences (NYSE:RCUS) appears to be modestly undervalued. Given this, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it is crucial to carefully review a company's financial strength before investing. A good starting point is looking at the cash-to-debt ratio. Arcus Biosciences has no long-term debt, resulting in a cash-to-debt ratio that is better than 99.87% of companies in the Biotechnology industry. This indicates that the financial strength of Arcus Biosciences is fair.
Profitability and Growth
Investing in profitable companies carries less risk, especially if they have demonstrated consistent profitability over the long term. Arcus Biosciences has been profitable for 1 year over the past 10 years, with revenues of $121.20 million and a Loss Per Share of $3.96 in the past 12 months. However, its operating margin of -258.04% is worse than 54.03% of companies in the Biotechnology industry, indicating poor profitability .
Growth is a critical factor in a company's valuation. Arcus Biosciences has a 3-year average annual revenue growth of 65.7%, ranking better than 86.14% of companies in the Biotechnology industry. However, its 3-year average EBITDA growth rate is -24.6%, ranking worse than 77.45% of companies in the industry, indicating poor growth .
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If ROIC exceeds WACC, the company is likely creating value for its shareholders. In the past 12 months, Arcus Biosciences's ROIC was -87.77, while its WACC was 7.93.
Conclusion
In summary, Arcus Biosciences (NYSE:RCUS) appears to be modestly undervalued. The company's financial condition is fair, but its profitability and growth are poor. To learn more about Arcus Biosciences stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
