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GW Pharmaceuticals PLC Stock Is Believed To Be Significantly Undervalued

- By GF Value

The stock of GW Pharmaceuticals PLC (NAS:GWPH, 30-year Financials) is estimated to be significantly undervalued, 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 $218.96 per share and the market cap of $6.8 billion, GW Pharmaceuticals PLC stock is estimated to be significantly undervalued. GF Value for GW Pharmaceuticals PLC is shown in the chart below.


GW Pharmaceuticals PLC Stock Is Believed To Be Significantly Undervalued
GW Pharmaceuticals PLC Stock Is Believed To Be Significantly Undervalued

Because GW Pharmaceuticals PLC is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth, which averaged 268.8% over the past 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. GW Pharmaceuticals PLC has a cash-to-debt ratio of 10.78, which which ranks better than 77% of the companies in Drug Manufacturers industry. The overall financial strength of GW Pharmaceuticals PLC is 7 out of 10, which indicates that the financial strength of GW Pharmaceuticals PLC is fair. This is the debt and cash of GW Pharmaceuticals PLC over the past years:

GW Pharmaceuticals PLC Stock Is Believed To Be Significantly Undervalued
GW Pharmaceuticals PLC Stock Is Believed To Be Significantly Undervalued

It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. GW Pharmaceuticals PLC has been profitable 2 over the past 10 years. Over the past twelve months, the company had a revenue of $559 million and loss of $2.16 a share. Its operating margin is -11.73%, which ranks worse than 68% of the companies in Drug Manufacturers industry. Overall, the profitability of GW Pharmaceuticals PLC is ranked 3 out of 10, which indicates poor profitability. This is the revenue and net income of GW Pharmaceuticals PLC over the past years:

GW Pharmaceuticals PLC Stock Is Believed To Be Significantly Undervalued
GW Pharmaceuticals PLC Stock Is Believed To Be Significantly Undervalued

Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of GW Pharmaceuticals PLC is 268.8%, which ranks better than 99% of the companies in Drug Manufacturers industry. The 3-year average EBITDA growth rate is 41%, which ranks better than 88% of the companies in Drug Manufacturers 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, GW Pharmaceuticals PLC's return on invested capital is -20.46, and its cost of capital is 11.01. The historical ROIC vs WACC comparison of GW Pharmaceuticals PLC is shown below:

GW Pharmaceuticals PLC Stock Is Believed To Be Significantly Undervalued
GW Pharmaceuticals PLC Stock Is Believed To Be Significantly Undervalued

In summary, the stock of GW Pharmaceuticals PLC (NAS:GWPH, 30-year Financials) shows every sign of being significantly undervalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 88% of the companies in Drug Manufacturers industry. To learn more about GW Pharmaceuticals PLC stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.