Alnylam Pharmaceuticals Stock Is Estimated To Be Possible Value Trap

GuruFocus.com
·4 min read

- By GF Value

The stock of Alnylam Pharmaceuticals (NAS:ALNY, 30-year Financials) gives every indication of being possible value trap, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $141.81 per share and the market cap of $16.6 billion, Alnylam Pharmaceuticals stock appears to be possible value trap. GF Value for Alnylam Pharmaceuticals is shown in the chart below.


Alnylam Pharmaceuticals Stock Is Estimated To Be Possible Value Trap
Alnylam Pharmaceuticals Stock Is Estimated To Be Possible Value Trap

The reason we think that Alnylam Pharmaceuticals stock might be a value trap is because its Piotroski F-score is only 3, out of the total of 9. Such a low Piotroski F-score indicates the company is getting worse in multiple aspects in the areas of profitability, funding and efficiency. In this case, investors should look beyond the low valuation of the company and make sure it has no long-term risks. To learn more about how the Piotroski F-score measures the business trend of a company, please go here.

Link: These companies may deliever higher future returns at reduced risk.

It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have 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 company. Alnylam Pharmaceuticals has a cash-to-debt ratio of 3.60, which is in the middle range of the companies in Biotechnology industry. The overall financial strength of Alnylam Pharmaceuticals is 4 out of 10, which indicates that the financial strength of Alnylam Pharmaceuticals is poor. This is the debt and cash of Alnylam Pharmaceuticals over the past years:

Alnylam Pharmaceuticals Stock Is Estimated To Be Possible Value Trap
Alnylam Pharmaceuticals Stock Is Estimated To Be Possible Value Trap

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Alnylam Pharmaceuticals has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $492.9 million and loss of $7.454 a share. Its operating margin is -168.09%, which ranks in the middle range of the companies in Biotechnology industry. Overall, the profitability of Alnylam Pharmaceuticals is ranked 2 out of 10, which indicates poor profitability. This is the revenue and net income of Alnylam Pharmaceuticals over the past years:

Alnylam Pharmaceuticals Stock Is Estimated To Be Possible Value Trap
Alnylam Pharmaceuticals Stock Is Estimated To Be Possible Value Trap

Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Alnylam Pharmaceuticals's 3-year average revenue growth rate is better than 89% of the companies in Biotechnology industry. Alnylam Pharmaceuticals's 3-year average EBITDA growth rate is -4%, which ranks in the middle range of the companies in Biotechnology industry.

Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company 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 is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Alnylam Pharmaceuticals's return on invested capital is -69.24, and its cost of capital is 7.88. The historical ROIC vs WACC comparison of Alnylam Pharmaceuticals is shown below:

Alnylam Pharmaceuticals Stock Is Estimated To Be Possible Value Trap
Alnylam Pharmaceuticals Stock Is Estimated To Be Possible Value Trap

To conclude, the stock of Alnylam Pharmaceuticals (NAS:ALNY, 30-year Financials) shows every sign of being possible value trap. The company's financial condition is poor and its profitability is poor. Its growth ranks in the middle range of the companies in Biotechnology industry. To learn more about Alnylam Pharmaceuticals stock, you can check out its 30-year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.

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