Is HUTCHMED (China) Ltd (HCM) Set to Underperform? Analyzing the Factors Limiting Growth
Long-established in the Drug Manufacturers industry, HUTCHMED (China) Ltd (NASDAQ:HCM) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 3.76%, juxtaposed with a three-month change of 51.11%. However, fresh insights from the GF Score 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 HUTCHMED (China) Ltd.
Understanding 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.
Financial strength rank: 7/10
Profitability rank: 3/10
Growth rank: 6/10
GF Value rank: 2/10
Momentum rank: 9/10
Based on the above method, GuruFocus assigned HUTCHMED (China) Ltd the GF Score of 69 out of 100, which signals poor future outperformance potential.
Unveiling HUTCHMED (China) Ltd's Business
HUTCHMED (China) Ltd is an innovative biopharmaceutical company engaged in the discovery, global development, and commercialization of targeted therapies and immunotherapies for the treatment of cancer and immunological diseases. The company has a portfolio of several cancer drug candidates currently in clinical studies around the world and extensive commercial infrastructure in its home market of China. The company operates in two reportable segments Oncology/Immunology, and Other Ventures. With a market cap of $2.89 billion and sales of $757.24 million, the company's operating margin stands at -13.98%.
Profitability Breakdown
HUTCHMED (China) Ltd's low Profitability rank can also raise warning signals. The company's Operating Margin has declined over the past five years ((-523,427.00%)), as shown by the following data: 2018: -43.27; 2019: -71.45; 2020: -86.27; 2021: -92.19; 2022: -95.61.
Additionally, HUTCHMED (China) Ltd's Gross Margin has also declined over the past five years, as evidenced by the data: 2018: 32.77; 2019: 21.84; 2020: 17.31; 2021: 27.49; 2022: 27.04. This trend underscores the company's struggles to convert its revenue into profits.
With a Piotroski F-Score of 1, HUTCHMED (China) Ltd's financial health appears concerning. This score, rooted in Joseph Piotroski's nine-point scale, evaluates a firm's profitability, liquidity, and operating efficiency. Given its rating, HUTCHMED (China) Ltd might be facing challenges in these areas.
Looking Ahead
Considering the company's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. While HUTCHMED (China) Ltd has made significant strides in the Drug Manufacturers industry, its declining profitability and financial health raise concerns about its future performance. As value investors, it's crucial to consider these factors when 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.
