Deciphera Pharmaceuticals Inc (DCPH, Financial) has recently experienced a daily loss of 2.19% and a 3-month loss of 10.22%. The company's Earnings Per Share (EPS) (EPS) also indicate a loss of 2.32. Given these figures, the question arises: is Deciphera Pharmaceuticals stock modestly undervalued? In the following analysis, we will delve into the valuation of Deciphera Pharmaceuticals, providing insight into its financial health and growth prospects.
A Snapshot of Deciphera Pharmaceuticals
Deciphera Pharmaceuticals Inc is a biotechnology company that develops and manufactures kinase-inhibiting drugs for the treatment of cancers and immunological diseases. The company holds a diverse pipeline of drug candidates, including three clinical-stage and two research-stage programs. Its lead drug candidate, DCC-2618, is designed to inhibit the full spectrum of mutant or amplified KIT and Pdgfra kinases that drive cancers such as gastrointestinal stromal tumors, advanced systemic mastocytosis, gliomas, and other solid tumors. The company also develops two other clinical-stage drug candidates, DCC-3014 and Rebastinib. All operations are based in the United States.
Deciphera Pharmaceuticals currently trades at $12.96 per share, with a market cap of $1 billion. The company's GF Value, an estimation of fair value, is $16.66. This discrepancy suggests that the stock may be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value. The GF Value Line provides an overview of the stock's fair trading value. It is calculated based on historical multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates.
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. At its current price of $12.96 per share, Deciphera Pharmaceuticals appears to be modestly undervalued.
Given this undervaluation, the long-term return of Deciphera Pharmaceuticals stock is likely to be higher than its business growth.
Financial Strength of Deciphera Pharmaceuticals
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, investors must review a company's financial strength before purchasing shares. Factors such as the cash-to-debt ratio and interest coverage can provide insight into a company's financial health. Deciphera Pharmaceuticals has a cash-to-debt ratio of 11.95, which ranks better than 76.7% of 1060 companies in the Drug Manufacturers industry. The overall financial strength of Deciphera Pharmaceuticals is 7 out of 10, indicating fair financial health.
Profitability and Growth of Deciphera Pharmaceuticals
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Deciphera Pharmaceuticals has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $144.10 million and a Loss Per Share of $2.32. Its operating margin is -137.49%, which ranks worse than 87.46% of 1053 companies in the Drug Manufacturers industry. Overall, GuruFocus ranks the profitability of Deciphera Pharmaceuticals at 1 out of 10, indicating poor profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Deciphera Pharmaceuticals is 44.9%, which ranks better than 93.2% of 926 companies in the Drug Manufacturers industry. The 3-year average EBITDA growth is 18.9%, which ranks better than 66.03% of 889 companies in the Drug Manufacturers industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Deciphera Pharmaceuticals's ROIC was -209.85, while its WACC came in at 1.99.
Conclusion
Overall, Deciphera Pharmaceuticals stock appears to be modestly undervalued. The company's financial condition is fair, but its profitability is poor. Its growth ranks better than 66.03% of 889 companies in the Drug Manufacturers industry. To learn more about Deciphera Pharmaceuticals stock, you can check out its 30-Year Financials here.
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