The stock of Revance Therapeutics (NAS: RVNC, 30-year Financials) is estimated to be 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 stock’s price is significantly above the GF value line, it is overvalued and its future performance is likely to 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 $ 33.21 per share and market cap of $ 2.4 billion, Revance Therapeutics stock is showing all signs of a possible value trap. The GF value for Revance Therapeutics is shown in the table below.
The reason we think Revance Therapeutics stock might be a value trap is that Revance Therapeutics has an Altman Z-score of 0.15, which indicates that the company’s financial position is in trouble 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 click here.
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It is always important to check the financial strength of a company before buying its shares. Investing in companies with low financial strength presents a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a business. Revance Therapeutics has a cash-to-debt ratio of 1.25, which is worse than 82% of companies in the biotech industry. The overall financial strength of Revance Therapeutics is 3 out of 10, indicating that the financial strength of Revance Therapeutics is low. Here is Revance Therapeutics’ debt and cash flow for the past few 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. Revance Therapeutics has been profitable 0 years in the past 10 years. In the past 12 months, the company reported revenues of $ 28.6 million and a loss of $ 4.78 per share. Its operating margin of -987.94% worse than 72% of companies in the biotechnology industry. Overall, GuruFocus rates Revance Therapeutics’ profitability as poor. Here is Revance Therapeutics’ sales and net income 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. Revance Therapeutics’ average annual revenue growth over 3 years is 208.4%, which ranks better than 97% of companies in the biotechnology industry. The 3-year average EBITDA growth rate is -4.3%, which is worse than 66% of companies in the biotechnology industry.
A company’s profitability can also be assessed by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). 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. If the return on invested capital exceeds the weighted average cost of capital, the company is likely to create value for its shareholders. Over the past 12 months, Revance Therapeutics’ ROIC is -128.00 while its WACC stood at 9.33. Revance Therapeutics’ historical ROIC vs WACC comparison is shown below:
In summary, the stock of Revance Therapeutics (NAS: RVNC, 30-year Financials) is seen as a possible value trap. The company’s financial situation is bad and its profitability is bad. Its growth ranks worse than 66% of companies in the biotechnology industry. To learn more about the Revance Therapeutics share, you can view its 30-year financial data here.
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