In the search for investment opportunities, value investors often use screening methods to find companies trading below their intrinsic worth while keeping solid operational basics. The "Decent Value" screen aims at securities with good valuation ratings, typically above 7 out of 10, while also needing acceptable scores in profitability, financial health, and growth. This balanced method helps avoid value traps by making sure that low-priced stocks are supported by strong business operations and positive future outlooks. One such company currently fitting these standards is EXELIXIS INC (NASDAQ:EXEL).
Valuation Metrics
Value investing depends on finding differences between market price and intrinsic value. EXELIXIS shows several notable valuation metrics that point to possible undervaluation:
- The company's Price/Earnings ratio of 17.63 is viewed as less expensive than 94.75% of its Biotechnology industry peers, which have an average P/E of 61.64.
- Its Price/Forward Earnings ratio of 14.40 is also positive, priced more affordably than 96.06% of the industry.
- When measured against the wider S&P 500, which has an average P/E of 25.07 and a Forward P/E of 34.08, EXEL seems appealingly priced.
- The Enterprise Value to EBITDA and Price/Free Cash Flow ratios are both in the high tier, showing the company is less expensive than over 95% of its industry rivals.
These valuation numbers are important for value investors because they signal the market may not be fully valuing the company's earnings power and cash flow generation compared to its present stock price.
Financial Health
A solid financial base is essential for value investors, since it lowers bankruptcy risk and offers stability. EXELIXIS shows very good financial health, receiving a rating of 9 out of 10.
- The company has no debt, leading to a Debt/Equity ratio of 0, which puts it with the most financially stable firms in its field.
- Liquidity is strong, with a Current Ratio of 3.75 and a Quick Ratio of 3.68, showing more than enough assets to meet short-term liabilities.
- An Altman-Z score of 12.33 indicates a very low short-term risk of financial trouble and is superior to 86.30% of industry peers.
This clean balance sheet offers a significant safety buffer, a key idea of value investing, as it lets the company endure economic slumps and put money into future growth without the load of interest costs.
Profitability Strength
For a stock to be a genuine value, it must be more than just inexpensive; it must be a profitable company. EXELIXIS performs well here too, with a profitability rating of 8. Its capacity to produce returns on capital is a main sign of a good business.
- The company has impressive returns, including a Return on Assets of 24.01% and a Return on Equity of 31.37%, doing better than over 97% of the biotechnology industry.
- Margins are similarly solid, with a Profit Margin of 29.63% and an Operating Margin of 35.85%, putting it in the high tier of its sector.
- A Gross Margin of 96.63% emphasizes the company's pricing ability and efficient cost setup.
High profitability confirms that the company is producing real economic value, which over the long term, should be seen in its stock price, matching the value investor's hope for price movement toward intrinsic worth.
Growth Trajectory
While pure value investing often looks at current assets and earnings, newer views also think about a company's growth potential. EXELIXIS displays a good growth rating of 8, indicating it is not a static value pick but a developing one.
- In the past, the company has provided solid growth, with Earnings Per Share increasing 44.51% in the last year and Revenue growing at an average yearly rate of 17.51% over recent years.
- Looking ahead, analysts predict continued firmness, with EPS expected to increase by 22.04% per year and Revenue by 10.30%.
This mix of growth and value is especially appealing. It indicates the market is using a reduced valuation on a company that is still enlarging its earnings base, possibly giving a double advantage from both multiple improvement and earnings growth.
The fundamental analysis for EXELIXIS INC, detailed in the full ChartMill report, presents a view of a financially stable, very profitable, and expanding company that is presently trading at a valuation that seems separate from its basic fundamentals. For investors using a value plan, this difference represents the main chance.
For investors looking for other chances that match a similar model, the Decent Value Stocks screen can be used to create a list of companies with good valuations and acceptable fundamentals.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation to buy or sell any security, or an offer to solicit any transaction in securities. All investments involve risk, including the possible loss of principal. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
