The stock of Palatin Technologies (AMEX:PTN, 30-year Financials) shows every sign of being significantly overvalued, 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 $0.715 per share and the market cap of $164.5 million, Palatin Technologies stock shows every sign of being significantly overvalued. GF Value for Palatin Technologies is shown in the chart below.
Because Palatin Technologies is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Palatin Technologies has a cash-to-debt ratio of 64.37, which is better than 70% of the companies in Biotechnology industry. The overall financial strength of Palatin Technologies is 6 out of 10, which indicates that the financial strength of Palatin Technologies is fair. This is the debt and cash of Palatin Technologies over the past years:
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. Palatin Technologies has been profitable 2 over the past 10 years. Over the past twelve months, the company had a revenue of $-0.5 million and loss of $0.11 a share. Its operating margin is 6163.80%, which ranks better than 100% of the companies in Biotechnology industry. Overall, the profitability of Palatin Technologies is ranked 1 out of 10, which indicates poor profitability. This is the revenue and net income of Palatin Technologies over the past years:
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 performance of a company’s stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Palatin Technologies is -84%, which ranks in the bottom 10% of the companies in Biotechnology industry. The 3-year average EBITDA growth rate is -18.6%, which ranks worse than 77% of the companies in Biotechnology 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, Palatin Technologies’s ROIC is -652.20 while its WACC came in at 8.41. The historical ROIC vs WACC comparison of Palatin Technologies is shown below:
In conclusion, Palatin Technologies (AMEX:PTN, 30-year Financials) stock appears to be significantly overvalued. The company’s financial condition is fair and its profitability is poor. Its growth ranks worse than 77% of the companies in Biotechnology industry.