Intercept Pharmaceuticals (NAS: ICPT, 30-year Financials) stock is considered a possible value trap, according to the GuruFocus value calculation. The GuruFocus Value is GuruFocus’s estimate of the fair value at which the stock is to trade. It is calculated based on the historical multiples at which the stock has traded, the company’s past growth, and analysts’ estimates of the company’s future performance. If a share’s price is significantly above the GF value line, it is overvalued and its future performance may be poor. On the other hand, if it is significantly below the GF value line, its future return is likely to be higher. At its current price of $ 21.395 per share and market cap of $ 709.5 million, Intercept Pharmaceuticals stock appears to be a possible value trap. The GF value for Intercept Pharmaceuticals is shown in the table below.

The reason we think Intercept Pharmaceuticals stock could be a value trap is that its Piotroski F-score is only 3, out of a total of 9. Such a low Piotroski F-score indicates that the company is falling. deteriorates in several aspects in the fields. profitability, financing and efficiency. In this case, investors should look beyond the low valuation of the company and make sure that it does not present any long-term risk. To learn more about how the Piotroski F-score measures a company’s business trend, please go here. Additionally, Intercept Pharmaceuticals has an Altman Z-score of -5.67, which indicates that the company’s financial position is in the troubled zone and involves a higher risk of bankruptcy. An Altman Z score above 2.99 would be preferable, indicating sound financial conditions. To learn more about how the Z-score measures a company’s financial risk, please go here.

Link: These companies can offer higher future returns with reduced risk.

Since investing in companies with poor financial strength could result in a permanent loss of capital, investors should carefully consider the financial strength of a company before deciding whether or not to buy shares. Examining the cash-to-debt ratio and interest coverage can provide a good initial perspective on the financial strength of the business. Intercept Pharmaceuticals has a cash-to-debt ratio 0.71, which is worse than 87% of companies in the biotechnology sector. Based on this, GuruFocus ranks Intercept Pharmaceuticals’ financial strength as 1 in 10, suggesting a poor track record. Here is Intercept Pharmaceuticals’ debt and cash flow over the past several years:

Investing in profitable businesses carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a business with high profit margins offers better performance potential than a business with low profit margins. Intercept Pharmaceuticals has been profitable 0 years in the past 10 years. In the past 12 months, the company recorded revenues of $ 321.7 million and a loss of $ 6.73 per share. Its operating margin of -50.47% in the mid-range of companies in the Biotechnology industry. Overall, GuruFocus rates Intercept Pharmaceuticals’ profitability as poor. Here is Intercept Pharmaceuticals sales and net profit for the past few years:

Growth is probably the most important factor in the valuation of a business. GuruFocus research has shown that growth is closely linked to a company’s long-term market performance. A faster growing business creates more shareholder value, especially if the growth is profitable. Intercept Pharmaceuticals’ 3-year average annual revenue growth is 22%, which is better than 75% of companies in the biotechnology industry. The average growth rate of EBITDA over 3 years is 19.6%, which is in line with the average for companies in the biotechnology sector.

Another way to determine a company’s profitability is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) The extent to which a business 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 should pay on average to all of its security holders to finance its assets. When the ROIC is higher than the WACC, it implies that the company creates value for the shareholders. Over the past 12 months, Intercept Pharmaceuticals’ return on invested capital is -240.98 and its cost of capital is 9.81. Intercept Pharmaceuticals’ historical ROIC vs WACC comparison is shown below:

In short, Intercept Pharmaceuticals (NAS: ICPT, 30-year Financials) stock is seen as a possible value trap. The financial situation of the company is bad and its profitability is bad. Its growth is in the mid-range of companies in the biotechnology industry. To learn more about Intercept Pharmaceuticals shares, you can view its 30-year financial data here.

To find out about high-quality companies that can deliver above-average returns, please see GuruFocus High Quality Low Capex Screener.