- By GF Value
The stock of Northwest Biotherapeutics (OTCPK:NWBO, 30-year Financials) is estimated to be 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 $1.39 per share and the market cap of $1.2 billion, Northwest Biotherapeutics stock is believed to be significantly overvalued. GF Value for Northwest Biotherapeutics is shown in the chart below.
Because Northwest Biotherapeutics is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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. Northwest Biotherapeutics has a cash-to-debt ratio of 0.39, which is in the bottom 10% of the companies in Biotechnology industry. GuruFocus ranks the overall financial strength of Northwest Biotherapeutics at 1 out of 10, which indicates that the financial strength of Northwest Biotherapeutics is poor. This is the debt and cash of Northwest Biotherapeutics over the past years:
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. Northwest Biotherapeutics has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $1.7 million and loss of $0.326 a share. Its operating margin is -4110.50%, which ranks worse than 86% of the companies in Biotechnology industry. Overall, the profitability of Northwest Biotherapeutics is ranked 1 out of 10, which indicates poor profitability. This is the revenue and net income of Northwest Biotherapeutics over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Northwest Biotherapeutics is -12.6%, which ranks in the middle range of the companies in Biotechnology industry. The 3-year average EBITDA growth rate is 64.4%, which ranks better than 94% of the companies in Biotechnology industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Northwest Biotherapeutics's ROIC is -78.22 while its WACC came in at 4.11. The historical ROIC vs WACC comparison of Northwest Biotherapeutics is shown below:
In summary, The stock of Northwest Biotherapeutics (OTCPK:NWBO, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks better than 94% of the companies in Biotechnology industry. To learn more about Northwest Biotherapeutics stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.