One of the cheapest stocks in our All Investable Stock Screener is Avadel Pharmaceuticals PLC (NASDAQ:AVDL).
Avadel Pharmaceuticals PLC (Avadel) is a specialty pharmaceutical company developing and commercializing pharmaceutical products. The company’s products include Bloxiverz, Vazculep, Akovaz, Karbinal ER, AcipHex Sprinkle, Cefaclor and Flexichamber.
A quick look at Avadel’s share price history over the past twelve months shows that the price is down 21%, but here’s why the company is undervalued.
(Source: Google Finance)
The following data is from the company’s latest financial statements, dated June 2017.
The company’s latest balance sheet shows that Avadel has $174 Million in total cash and cash equivalents. Further down the balance sheet we can see that the company has $1 Million in long-term debt and no short-term debt. Therefore, Avadel has a net cash position of $173 Million (cash minus debt).
If we consider that Avadel currently has a market cap of $346 Million, when we subtract the net cash totaling $173 Million that equates to an Enterprise Value of $173 Million.
If we move over to the company’s latest income statements we can see that Avadel has $75 Million in trailing twelve month operating earnings which means that the company is currently trading on an Acquirer’s Multiple of 2.30, or 2.30 times operating earnings. That places Avadel squarely in undervalued territory.
The Acquirer’s Multiple is defined as:
Enterprise Value/Operating Earnings*
*We make adjustments to operating earnings by constructing an operating earnings figure from the top of the income statement down, where EBIT and EBITDA are constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–income that a company does not expect to recur in future years–ensures that these earnings are related only to operations.
If we take a look at the company’s latest cash flow statements we can see that Avadel generated trailing twelve month operating cash flow of $37 Million and had $1 Million in Capex. That equates to $36 Million in trailing twelve month free cash flow, or a FCF/EV Yield of 21%. The company has also spent $13.1 Million (ttm) buying back shares, providing shareholders with a shareholder yield of 4%.
Something else worth keeping in mind is Avadel’s annualized Return on Equity (ROE) for the quarter ending June 2017. A quick calculation shows that the company had $59 Million in equity for the quarter ending March 2017 and $77 Million for the quarter ending June 2017. If we divide that number by two we get $68 Million in average equity. If we consider that the company has $40 Million (ttm) in net income, that equates to an annualized Return on Equity (ROE) for the quarter ending June 2017 of 59%.
In terms of Avadel’s current valuation, the company has 50% of its market cap in cash. Net current assets totaling $204 Million exceed its total liabilities of $182 Million by $22 Million. Avadel’s trading on a P/E of 9.4 compared to its 5Y average of 22.5**, a P/B of 4.5 compared to its 5Y average of 13.2**, and a P/S of 2.1 compared to its 5Y average of 9.6**. The company has a FCF/EV Yield of 21% (ttm) and an Acquirer’s Multiple of 2.30, or 2.30 times operating earnings. Avadel has an annualized Return on Equity (ROE) for the quarter ending June 2017 of 59% (ttm) and provides a shareholder yield of 4% (ttm). All of which indicates that the company is undervalued.
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