Long-established in the Drug Manufacturers industry, Catalent Inc (CTLT, Financial) has enjoyed a stellar reputation. It has recently witnessed a surge of 3.34%, juxtaposed with a three-month change of 28.24%. However, fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Catalent Inc.
What Is the GF Score?
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- 1. Financial strength rank: 4/10
- 2. Profitability rank: 7/10
- 3. Growth rank: 3/10
- 4. GF Value rank: 4/10
- 5. Momentum rank: 2/10
Based on the above method, GuruFocus assigned Catalent Inc the GF Score of 63 out of 100, which signals poor future outperformance potential.
Understanding Catalent Inc Business
Catalent is a contract development and manufacturing organization, or CDMO. It operates under four segments: biologics, softgel and oral technologies, oral and specialty delivery, and clinical supply services. Catalent derives its revenues primarily from long-term supply agreements with pharmaceutical customers. The company provides a range of development and manufacturing solutions for drugs, protein-based biologics, cell and gene therapies, and consumer health products throughout the entire life cycle of a product from the drug development process to commercial supply. Catalent has over 50 facilities across four continents.
Financial Strength Breakdown
Catalent Inc's financial strength indicators present some concerning insights about the company's balance sheet health. Catalent Inc has an interest coverage ratio of 0.4, which positions it worse than 97.16% of 669 companies in the Drug Manufacturers industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Scoreis just 1.34, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years.
Additionally, the company's low cash-to-debt ratio at 0.06 indicates a struggle in handling existing debt levels.
Furthermore, the company's debt-to-Ebitda ratio is 27.4, which is above Joel Tillinghast's warning level of 4 and is worse than 97.72% of 614 companies in the Drug Manufacturers industry. Tillinghast said in his book “Big Money Think's Small: Biases, Blind Spots, and Smarter Investing” that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Growth Prospects
A lack of significant growth is another area where Catalent Inc seems to falter, as evidenced by the company's low Growth rank. Lastly, Catalent Inc predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Next Steps
Given the company's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights the firm's unparalleled position for potential underperformance. It's crucial for investors to consider these factors when making investment decisions. GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen.
