Twist Bioscience (TWST) Stock: A Hidden Value Trap? Unpacking the Risks and Rewards
Value-focused investors constantly search for stocks priced below their intrinsic value. Twist Bioscience Corp (NASDAQ:TWST) is one such stock that deserves attention. Currently priced at $20.18, the stock recorded a loss of 3.72% in a day and a 3-month increase of 17.31%. Its fair valuation, as indicated by its GF Value, is $81.56.
Understanding the 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 provides an overview of the fair value at which the stock should be traded. It is calculated based on 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, and future estimates of the business performance.
However, investors need to consider a more in-depth analysis before making an investment decision. Despite its seemingly attractive valuation, certain risk factors associated with Twist Bioscience (NASDAQ:TWST) should not be ignored. These risks are primarily reflected through its low Piotroski F-score of 2. These indicators suggest that Twist Bioscience, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Deciphering the Piotroski F-Score
The Piotroski F-score, created by accounting professor Joseph Piotroski, is a tool used to assess the strength of a company's financial health. The score is based on nine criteria that fall into three categories: profitability, leverage/liquidity/ source of funds, and operating efficiency. The overall score ranges from 0 to 9, with higher scores indicating healthier financials. Twist Bioscience's current Piotroski F-Score, however, falls in the lower end of this spectrum, indicating potential red flags for investors.
Company Overview
Twist Bioscience Corp is a synthetic biology company. It develops a disruptive DNA synthesis platform to industrialize the engineering of biology. The company's DNA synthesis platform uses a proprietary semiconductor-based synthetic DNA manufacturing process that synthesizes DNA on silicon instead of on traditional well-plastic plates. This enables the production of high-quality synthetic DNA faster and more affordably, overcoming inefficiencies and enabling researchers to rapidly realize opportunities ahead. Geographically, it derives a majority of its revenue from the United States.
Profitability Analysis
One significant component of the F-Score is a positive return on assets (ROA). A closer look at Twist Bioscience's ROA reveals a worrying trend of negative returns. This indicates the company's inability to generate profit from its assets - a fundamental concern for any investor.
Leverage, Liquidity and Source of Funds: A Worrying Trend
Assessing the aspect of leverage, liquidity, and sources of funds, Twist Bioscience demonstrates an alarming rise in its debt-to-total assets ratio over the past three years. The provided data shows 2021: 0.09; 2022: 0.08; 2023: 0.12, expressed as percentages. A higher debt ratio suggests that Twist Bioscience is increasingly financing its assets through debt, thereby escalating its financial risk. The Piotroski F-Score views this as a negative indicator, further cautioning investors about Twist Bioscience.
Operating Efficiency: A Darker Picture
Examining the data provided: 2021: 48.96; 2022: 56.29; 2023: 57.04, it becomes evident that Twist Bioscience has seen an increase in its Diluted Average Shares Outstanding over the past three years. This trend signals that the company has issued more shares. While issuing additional shares can provide immediate capital for the business, it can also lead to the dilution of existing shares' value.
Conclusion
While the Piotroski F-score is not the only lens through which to view a potential investment, it is a robust and comprehensive tool for evaluating a company's financial health. Unfortunately for Twist Bioscience, its current score suggests potential troubles. GuruFocus Premium members can find stocks with high Piotroski F-score using the following Screener: Piotroski F-score screener .
This article first appeared on GuruFocus.
