MannKind Stock Is Believed To Be Significantly Overvalued
- By GF Value
The stock of MannKind (NAS:MNKD, 30-year Financials) shows every sign of being significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future 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. At its current price of $4.29 per share and the market cap of $1.1 billion, MannKind stock appears to be significantly overvalued. GF Value for MannKind is shown in the chart below.
Because MannKind is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 37.4% over the past three years and is estimated to grow 15.97% annually over the next three to five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. MannKind has a cash-to-debt ratio of 0.53, which is worse than 89% of the companies in Biotechnology industry. GuruFocus ranks the overall financial strength of MannKind at 1 out of 10, which indicates that the financial strength of MannKind is poor. This is the debt and cash of MannKind over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. MannKind has been profitable 1 over the past 10 years. Over the past twelve months, the company had a revenue of $65.1 million and loss of $0.25 a share. Its operating margin is -38.05%, which ranks in the middle range of the companies in Biotechnology industry. Overall, GuruFocus ranks the profitability of MannKind at 1 out of 10, which indicates poor profitability. This is the revenue and net income of MannKind over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of MannKind is 37.4%, which ranks better than 82% of the companies in Biotechnology industry. The 3-year average EBITDA growth is 40.7%, which ranks better than 82% of the companies in Biotechnology industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, MannKind's ROIC was -28.28, while its WACC came in at 11.78. The historical ROIC vs WACC comparison of MannKind is shown below:
In conclusion, The stock of MannKind (NAS:MNKD, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks better than 82% of the companies in Biotechnology industry. To learn more about MannKind stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
