At $178.01, Is Loxo Oncology, Inc. (NASDAQ: LOXO) A Sell?

in INVESTING IDEAS by

Shares of Loxo Oncology, Inc. (NASDAQ: LOXO) are receiving a lot of investor interest as of late due to the stock’s 28.4% increase over the last month. Shareholders are now asking themselves whether the company’s current stock price is reflective of its true value or if shares have even further upside from here.

Let’s take a look at Loxo Oncology’s value and outlook based on its most recent financial data to see if there are any catalysts for a price change.


What’s The Opportunity In Loxo Oncology?

According to our 4 valuation models, Loxo Oncology seems to be fairly priced in the market at 1.7% above its intrinsic value. Meaning if you buy Loxo Oncology today, you’d be paying a reasonable price for it. If you believe the company’s fair value is $175.02, then there’s not significant upside to be gained from mispricing.

Loxo Oncology, Inc. Valuation Detail
Analysis Model Fair Value Upside (Downside)
10-yr DCF Revenue Exit $271.38 52.5%
5-yr DCF Revenue Exit $131.88 -25.9%
5-yr DCF EBITDA Exit $155.93 -12.4%
5-yr DCF Growth Exit $140.88 -20.9%
Average $175.02 -1.7%

Click on any of the analyses above to view the latest model with real-time data.

Although, there may be an opportunity to buy in the future. This is because Loxo Oncology’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.


Can We Expect Growth From Loxo Oncology?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matters the most, a more compelling investment thesis would be high growth potential at a cheap price.

Loxo Oncology projected revenue chartsource: finbox.io data explorer

Loxo Oncology’s revenue growth is expected to average 91.4% 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.


What This Means For Investors

Growth investors typically look to invest in companies that are expanding sales, gaining market share and building customer bases. On the other hand, value investors often argue that the most successful investments are in companies that deliver the highest cash flows while trading at the lowest valuation.

But why not put those hands together? A company that has both growth and value characteristics would certainly make the most attractive investment. So what did we find out about Loxo Oncology?

Loxo Oncology’s optimistic future growth appears to have been factored into the current share price with the stock now trading near its intrinsic value. As a shareholder, you may have already conducted your fundamental analysis on the company and the stock’s recent appreciation may have been expected. Therefore, it may be time for investors to take some chips off the table. For prospective investors looking to purchase shares of Loxo Oncology, it may be worth holding off until the stock develops a wider margin of safety.

It is important to note that there are a variety of other fundamental factors that I have not taken into consideration in this article. If you have not done so already, I highly recommend that you complete your research on Loxo Oncology by taking a look at the following:

Valuation Metrics: what is Loxo Oncology’s price to book ratio and how does it compare to its peers? Analyze Price / Book here.

Risk Metrics: what is Loxo Oncology’s CapEx coverage? This is the amount a company outlays for capital assets for each dollar it generates from those investments. View the company’s CapEx coverage here.

Efficiency Metrics: inventory turnover is a ratio that measures the number of times a company’s inventory is sold and replaced over the year. View Loxo Oncology’s inventory turnover here.

As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.

Expertise: Valuation, financial statement analysis. Matt Hogan is also a co-founder of finbox.io. His expertise is in investment decision making. Prior to finbox.io, Matt worked for an investment banking group providing fairness opinions in connection to stock acquisitions. He spent much of his time building valuation models to help clients determine an asset’s fair value. He believes that these same valuation models should be used by all investors before buying or selling a stock. His work is frequently published at InvestorPlace, Benzinga, ValueWalk, AAII, Barron’s, Seeking Alpha and investing.com. Matt can be reached at matt@finbox.io or at +1 (516) 778-6257.

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