Collegium Pharmaceutical Inc (NASDAQ:COLL) Presents a Compelling Value Investment Case

For investors looking for chances where the market price may not completely show a company's true value, a systematic filtering process can help find possible candidates. One such way is to look for stocks that show a good basic valuation score while also keeping acceptable ratings in other important areas like profitability, financial condition, and expansion. This technique tries to find companies that are trading at appealing prices compared to their financial results and steadiness, a key part of traditional value investing ideas. Such filters can point out stocks that, while maybe not noticed or priced low by the wider market, have the basic soundness to justify more examination.

Collegium Pharmaceutical Inc (NASDAQ:COLL) recently came up from such a "acceptable value" filter. The Stoughton, Massachusetts-based pharmaceutical company focuses on creating and selling abuse-deterrent products for chronic pain and attention deficit hyperactivity disorder (ADHD). Its sold products include names like Xtampza ER, Belbuca, and Nucynta. With the stock appearing on a search made to find low-priced names with good basics, a more detailed look at its financial numbers is justified.

An Interesting Valuation View

The most noticeable part of Collegium Pharmaceutical's basic report is its valuation rating, which gets a high 9 out of 10. This rating implies the stock is priced cautiously relative to its finances, a main beginning place for value-focused investors. Important numbers backing this include:

• Price-to-Earnings (P/E) Ratio: At 6.43, COLL's P/E ratio is much lower than both the industry average of 34.28 and the wider S&P 500's average of 27.17. The company is less expensive than about 95% of similar companies in the pharmaceuticals industry based on this number.
• Forward P/E Ratio: The valuation stays appealing looking forward, with a forward P/E of 5.65.
• Price-to-Free Cash Flow and EV/EBITDA: The stock also seems inexpensive based on cash flow and enterprise value measures, rating better than over 96% and 98% of industry rivals, in that order.

For value investors, a low valuation gives that needed "margin of safety", a cushion between the price paid and the investor's calculation of real value. COLL's measures show the market is pricing the company at a large discount to many similar companies.

Evaluating Profitability and Financial Condition

While a low price is attractive, it must be looked at next to the company's capability to produce earnings and keep a solid financial position, important parts in steering clear of a "value trap." Here, Collegium shows a varied but mostly good picture.

Profitability is a definite positive, with a rating of 8. The company has been regularly profitable with positive cash flow from operations. Its profit margins are strong:

• An operating margin of 20.74% does better than almost 89% of the industry.
• Return on equity is good at 21.27%, putting it in the top group of its field.

Financial Condition, however, gets a more middle-of-the-road 5, pointing to some parts for careful look. The company has a fairly high amount of financial debt, with a debt-to-equity ratio of 2.71 that is not as good as most industry peers. This is weighed against positive points:

• A good Debt-to-Free Cash Flow ratio of 2.79 implies the company could pay off its debt in under three years using its present cash flow, a number that does better than 90% of the industry.
• Liquidity measures (Current and Quick Ratio) are sufficient but not outstanding, showing the company can meet its near-term bills.

For the value investor, good profitability helps affirm that the low valuation is not just a sign of a failing business model. The condition score, while not a top rating, shows controllable risks, especially given the good cash flow to cover debt.

Expansion Path and Future View

Expansion is the last part of the analysis, as value investing does not mean putting money into unchanging companies. COLL's expansion rating is a neutral 5. The company has a notable recent past:

• Income grew 26.34% over the last year, with an average yearly growth rate of 16.31% over recent years.
• Earnings Per Share (EPS) has risen quickly, growing 30.73% last year and at an average yearly rate of over 154% in recent years.

The future view, however, is more restrained. Experts anticipate a small drop in EPS growth and a more moderate income rise in the next few years. This expected easing in growth rate may partly clarify the stock's low valuation. For a value investor, this situation can show a chance: the market may be too negative about the company's ability to maintain cash flows from its set group of products, concentrating on slowing expansion rather than the basic profitability.

Is COLL a Value Chance?

Collegium Pharmaceutical Inc presents an interesting case for investors filtering for low-priced stocks with acceptable basics. The company trades at a large discount to the market and its industry, has better profitability and cash production, and has shown good past expansion. While its financial position holds notable debt, it is well-backed by strong free cash flow. The main question for value investors is whether the market is pricing the company too low because of worries over future expansion slowing down.

The "acceptable value" filter that found COLL is made to find exactly this kind of picture, a stock priced for doubt that still shows basic soundness. A complete listing of all the numbers talked about can be seen in the full ChartMill Fundamental Analysis Report for COLL.

Filters like this can be a useful beginning place for more study. You can look at more stocks that match this "acceptable value" picture by using the set-up filter here.

Disclaimer: This article is for information only and does not make up financial advice, a suggestion, or an offer to buy or sell any securities. Investors should do their own complete study and think about their personal financial situation before making any investment choices.