Avadel Pharmaceuticals PLC (AVDL): Is It Really Priced Right? An In-depth Exploration
Avadel Pharmaceuticals PLC (NASDAQ:AVDL) has recently experienced a daily gain of 2.26%, although it has seen a 3-month loss of -18.14%. Despite these fluctuations, the Loss Per Share stands at 2.08. The question that arises is whether the stock is significantly overvalued. Let's delve into a comprehensive valuation analysis to uncover the answer.
Company Snapshot: Avadel Pharmaceuticals PLC
Avadel Pharmaceuticals PLC is a specialty pharmaceutical company that identifies, develops, and commercializes branded pharmaceutical products. It focuses on controlled-release therapeutic products based on its proprietary drug delivery technologies in the United States. The company's products portfolio includes Bloxiverz, Vazculep, Akovaz, Karbinal ER, AcipHex Sprinkle, Cefaclor, and Flexichamber. With a stock price of $11.33, it's essential to compare this with the GF Value, an estimation of the fair value, to assess the company's true worth.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It's calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line on the summary page provides an overview of the fair value at which the stock should ideally be traded.
When the stock price is significantly above the GF Value Line, it is considered overvalued, indicating a likely poor future return. Conversely, if it's significantly below the GF Value Line, its future return will likely be higher. Currently, Avadel Pharmaceuticals PLC, with its market cap of $1 billion, appears to be significantly overvalued.
Because Avadel Pharmaceuticals PLC is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth. For companies that may deliver higher future returns at reduced risk, check out these companies.
Assessing Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it's crucial to review a company's financial strength before deciding to buy its stock. A good starting point for understanding the financial strength of a company is looking at the cash-to-debt ratio and interest coverage. Avadel Pharmaceuticals PLC has a cash-to-debt ratio of 7.26, which is better than 74.39% of 1058 companies in the Drug Manufacturers industry. GuruFocus ranks the overall financial strength of Avadel Pharmaceuticals PLC at 6 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Avadel Pharmaceuticals PLC has been profitable 3 times over the past 10 years. Over the past twelve months, the company had a revenue of $1.50 million and Loss Per Share of $2.08. Its operating margin is -7893.32%, which ranks worse than 98.86% of 1051 companies in the Drug Manufacturers industry. Overall, the profitability of Avadel Pharmaceuticals PLC is ranked 3 out of 10, indicating poor profitability.
Growth is probably the most important factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Avadel Pharmaceuticals PLC is 0%, which ranks worse than 0% of 924 companies in the Drug Manufacturers industry. The 3-year average EBITDA growth rate is -37%, which ranks worse than 91.88% of 887 companies in the Drug Manufacturers industry.
ROIC vs WACC
Another way to assess the profitability of a company is to compare its return on invested capital (ROIC) and the weighted cost of capital (WACC). 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. For the past 12 months, Avadel Pharmaceuticals PLC's ROIC is -170.37, and its WACC is 14.75.
Conclusion
In summary, the stock of Avadel Pharmaceuticals PLC appears to be significantly overvalued. The company's financial condition is fair, but its profitability is poor. Its growth ranks worse than 91.88% of 887 companies in the Drug Manufacturers industry. To learn more about Avadel Pharmaceuticals PLC stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
