Heron Therapeutics Inc (NASDAQ: HRTX) investors have enjoyed seeing the stock price increase by 40.5% over the last month. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at the company’s expected growth and valuation based on its most recent financial data to see if there is further upside moving forward.
Is Heron Still Cheap?
Good news, value investors! Heron is still a bargain right now. According to the valuation below, the intrinsic value for the stock is $35.39, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low.
|Analysis||Model Fair Value||Upside (Downside)|
|10-yr DCF Revenue Exit||$48.35||56.0%|
|5-yr DCF Revenue Exit||$48.64||56.9%|
|10-yr DCF EBITDA Exit||$28.97||-6.6%|
|5-yr DCF EBITDA Exit||$22.56||-27.2%|
|10-yr DCF Growth Exit||$34.87||12.5%|
|5-yr DCF Growth Exit||$28.99||-6.5%|
Click on any of the analyses above to view the latest model with real-time data.
Heron’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta of 0.99. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.
What Does The Future Of Heron Look Like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations.
source: finbox.io data explorer
Heron’s revenue growth is expected to average 78.1% over the next five fiscal years, indicating a solid future ahead. Unless expenses grow at the same level, or higher, this top-line growth should lead to robust cash flows, feeding into a higher share value.
How This Impacts You
Many investors separate stocks into value and growth categories based on quantitative metrics. However, one of the most famous investors in the world views this as foolish. In Warren Buffett’s 1992 letter to Berkshire Hathaway shareholders, Buffett touches upon a subject at odds with much of the investment industry:
“Most analysts feel they must choose between two approaches customarily thought to be in opposition: ‘value’ and ‘growth.’ Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing. We view that as fuzzy thinking… In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value.”
While investors tend to categorize stocks into value and growth, some of the most successful investors view growth as simply one component of a company’s value.
Heron’s optimistic future growth does not appear to have been fully factored into the current share price with the stock still trading below its intrinsic value. Therefore, it may be a good time to purchase shares or increase your position in the company.
But before making an investment decision, I recommend you continue to research Heron to get a more comprehensive view of the company by looking at:
Risk Metrics: what is Heron’s Altman Z score? It’s a famous formula used to predict the probability that a firm will go into bankruptcy within two years. View the company’s Altman Z score here.
Valuation Metrics: how much upside do shares of Heron have based on the Ben Graham Formula? Take a look at our Ben Graham Formula data explorer which also compares the company’s upside to its peers.
Efficiency Metrics: how much free cash flow does Heron generate as a percentage of total sales? Has it been increasing or decreasing over time? Review the firm’s free cash flow margin here.
Author: Brian Dentino
Expertise: financial technology, analyzing market trends
Brian is a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to research stock fundamentals. Brian’s background is in physics & computer science and previously worked as a software engineer at GE Healthcare. He enjoys applying his expertise in technology to help find market trends that impact investors.
Brian can be reached at email@example.com.
As of this writing, Brian did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.