Merus NV (MRUS): A Deep Dive into Its Overvalued Status
Merus NV (NASDAQ:MRUS) has recently seen a daily gain of 3.12% and a 3-month gain of 6.3%. However, with a Loss Per Share of 3.86, the question arises: Is the stock significantly overvalued? This article aims to answer that question by offering an in-depth valuation analysis of Merus NV. We invite you to delve into the following sections for a comprehensive understanding of the company's value.
An Overview of Merus NV
Merus NV is a clinical-stage immuno-oncology company that develops innovative full-length human bispecific antibody therapeutics, referred to as Biclonics. The company's only reportable segment comprises the discovery and development of innovative bispecific therapeutics. Its product pipeline includes MCLA-128, MCLA-117, MCLA-158, and others. The company's stock price currently stands at $23.77 per share, with a market capitalization of $1.40 billion. When compared to its GF Value of $17.89, it appears that the stock is significantly overvalued.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, an adjustment factor from GuruFocus based on past returns and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on the GF Value, Merus NV appears to be significantly overvalued. The stock's fair value is determined by historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued, leading to poor future returns. If the stock's share price is significantly below the GF Value Line, the stock may be undervalued, leading to high future returns. Therefore, given its significantly overvalued status, the long-term return of Merus NV's stock is likely to be much lower than its future business growth.
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Financial Strength of Merus NV
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Hence, it is crucial to thoroughly review a company's financial strength before deciding to buy its stock. A good starting point for understanding a company's financial strength is looking at its cash-to-debt ratio and interest coverage. Merus NV has a cash-to-debt ratio of 20.74, which is better than 61.59% of 1518 companies in the Biotechnology industry. GuruFocus ranks the overall financial strength of Merus NV at 7 out of 10, indicating fair financial strength.
Profitability and Growth of Merus NV
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is typically a safer investment than those with low profit margins. Merus NV has been profitable 0 times over the past 10 years. Over the past twelve months, the company had a revenue of $41.20 million and a Loss Per Share of $3.86. Its operating margin is -418.45%, ranking worse than 60.06% of 1029 companies in the Biotechnology industry. Overall, the profitability of Merus NV is ranked 1 out of 10, indicating poor profitability.
Growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, it usually creates value for its shareholders, especially if the growth is profitable. Conversely, if a company's revenue and earnings are declining, the value of the company will decrease. Merus NV's 3-year average revenue growth rate is worse than 70.73% of 762 companies in the Biotechnology industry. Merus NV's 3-year average EBITDA growth rate is -14.2%, which ranks worse than 70.78% of 1256 companies in the Biotechnology industry.
ROIC vs WACC
Another method of determining a company's profitability is to compare its return on invested capital (ROIC) to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Merus NV's ROIC is -184.92, and its cost of capital is 8.88.
Conclusion
In conclusion, the stock of Merus NV gives every indication of being significantly overvalued. The company's financial condition is fair, but its profitability is poor. Its growth ranks worse than 70.78% of 1256 companies in the Biotechnology industry. To learn more about Merus NV stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
