- By GF Value
The stock of Calyxt (NAS:CLXT, 30-year Financials) is estimated to be 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 $4.25 per share and the market cap of $158.1 million, Calyxt stock is estimated to be possible value trap. GF Value for Calyxt is shown in the chart below.
The reason we think that Calyxt stock might be a value trap is because its Piotroski F-score is only 2, 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. Furthermore, Calyxt has an Altman Z-score of -2.84, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions. To learn more about how the Z-score measures the financial risk of the company, please go here.
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Calyxt has a cash-to-debt ratio of 0.99, which is in the middle range of the companies in the industry of Consumer Packaged Goods. GuruFocus ranks the overall financial strength of Calyxt at 4 out of 10, which indicates that the financial strength of Calyxt is poor. This is the debt and cash of Calyxt 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. Calyxt has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $25.9 million and loss of $1.26 a share. Its operating margin is -162.98%, which ranks in the bottom 10% of the companies in the industry of Consumer Packaged Goods. Overall, the profitability of Calyxt is ranked 3 out of 10, which indicates poor profitability. This is the revenue and net income of Calyxt over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Calyxt is 217.5%, which ranks better than 100% of the companies in the industry of Consumer Packaged Goods. The 3-year average EBITDA growth is -4.1%, which ranks worse than 68% of the companies in the industry of Consumer Packaged Goods.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Calyxt's return on invested capital is -145.33, and its cost of capital is 11.36. The historical ROIC vs WACC comparison of Calyxt is shown below:
To conclude, the stock of Calyxt (NAS:CLXT, 30-year Financials) is estimated to be possible value trap. The company's financial condition is poor and its profitability is poor. Its growth ranks worse than 68% of the companies in the industry of Consumer Packaged Goods. To learn more about Calyxt stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.