Takeda Pharmaceutical Co Stock Shows Every Sign Of Being Fairly Valued
- By GF Value
The stock of Takeda Pharmaceutical Co (NYSE:TAK, 30-year Financials) shows every sign of being fairly valued, 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 $16.72 per share and the market cap of $52.7 billion, Takeda Pharmaceutical Co stock is believed to be fairly valued. GF Value for Takeda Pharmaceutical Co is shown in the chart below.
Because Takeda Pharmaceutical Co is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which is estimated to grow 0.88% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Takeda Pharmaceutical Co has a cash-to-debt ratio of 0.22, which which ranks worse than 80% of the companies in Drug Manufacturers industry. The overall financial strength of Takeda Pharmaceutical Co is 4 out of 10, which indicates that the financial strength of Takeda Pharmaceutical Co is poor. This is the debt and cash of Takeda Pharmaceutical Co over the past years:
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. Takeda Pharmaceutical Co has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $30.1 billion and earnings of $1.115 a share. Its operating margin is 15.93%, which ranks better than 75% of the companies in Drug Manufacturers industry. Overall, the profitability of Takeda Pharmaceutical Co is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Takeda Pharmaceutical Co over the past years:
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. Takeda Pharmaceutical Co's 3-year average revenue growth rate is worse than 76% of the companies in Drug Manufacturers industry. Takeda Pharmaceutical Co's 3-year average EBITDA growth rate is 12.8%, which ranks in the middle range of the companies in Drug Manufacturers industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). 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. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Takeda Pharmaceutical Co's ROIC is 4.53 while its WACC came in at 3.82. The historical ROIC vs WACC comparison of Takeda Pharmaceutical Co is shown below:
To conclude, the stock of Takeda Pharmaceutical Co (NYSE:TAK, 30-year Financials) is estimated to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Drug Manufacturers industry. To learn more about Takeda Pharmaceutical Co stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
