Ironwood Pharmaceuticals (IRWD): A Comprehensive Analysis of Its Market Value
Ironwood Pharmaceuticals Inc (NASDAQ:IRWD) recently reported a daily gain of 9.76%, despite a 3-month loss of 14.16%. The company has a Loss Per Share of 6.04. This raises the question: Is the stock modestly undervalued? We encourage you to read on as we delve into a detailed valuation analysis of Ironwood Pharmaceuticals (NASDAQ:IRWD).
Company Overview
Ironwood Pharmaceuticals is a specialty and generic drug manufacturing company that operates a human therapeutics segment. The company focuses on advancing innovative product opportunities in areas of large unmet need, including irritable bowel syndrome with constipation, chronic idiopathic constipation, hyperuricemia associated with uncontrolled gout, uncontrolled gastroesophageal reflux disease, and vascular and fibrotic diseases. Ironwood Pharmaceuticals considers collaborative licenses, commercial agreements, and acquisition investment to be potential components of its operational growth strategy for expanding its research, development, manufacturing, and marketing capabilities.
At its current price of $9.45 per share, Ironwood Pharmaceuticals has a market cap of $1.50 billion, and the stock gives every indication of being modestly undervalued. This is the income breakdown of Ironwood Pharmaceuticals:
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
GuruFocus adjustment factor based on the company's past returns and growth.
Future estimates of the business performance.
If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. Because Ironwood Pharmaceuticals is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to understand its financial strength. Ironwood Pharmaceuticals has a cash-to-debt ratio of 0.22, which ranks worse than 74.5% of 1059 companies in the Drug Manufacturers industry. The overall financial strength of Ironwood Pharmaceuticals is 2 out of 10, which indicates that the financial strength of Ironwood Pharmaceuticals is poor.
This is the debt and cash of Ironwood Pharmaceuticals over the past years:
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Ironwood Pharmaceuticals has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $427.30 million and Loss Per Share of $6.04. Its operating margin is -204.36%, which ranks worse than 89.67% of 1046 companies in the Drug Manufacturers industry. Overall, the profitability of Ironwood Pharmaceuticals is ranked 3 out of 10, which indicates poor profitability.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Ironwood Pharmaceuticals's 3-year average revenue growth rate is worse than 80.52% of 924 companies in the Drug Manufacturers industry. Ironwood Pharmaceuticals's 3-year average EBITDA growth rate is 29.4%, which ranks better than 75.96% of 890 companies in the Drug Manufacturers industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Ironwood Pharmaceuticals's return on invested capital is -206.07, and its cost of capital is 6.32.
The historical ROIC vs WACC comparison of Ironwood Pharmaceuticals is shown below:
Conclusion
In short, the stock of Ironwood Pharmaceuticals (NASDAQ:IRWD) gives every indication of being modestly undervalued. The company's financial condition is poor and its profitability is poor. Its growth ranks better than 75.96% of 890 companies in the Drug Manufacturers industry. To learn more about Ironwood Pharmaceuticals stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
