Long-established in the Drug Manufacturers industry, Societal CDMO Inc (SCTL, Financial) has enjoyed a stellar reputation. However, it has recently witnessed a decline of 30.24%, juxtaposed with a three-month change of -50.36%. Fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Societal CDMO Inc.
Deciphering the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- 1. Financial strength rank: 3/10
- 2. Profitability rank: 3/10
- 3. Growth rank: 1/10
- 4. GF Value rank: 8/10
- 5. Momentum rank: 2/10
Based on the above method, GuruFocus assigned Societal CDMO Inc the GF Score of 54 out of 100, which signals poor future outperformance potential.
Understanding Societal CDMO Inc's Business
Societal CDMO Inc is a bi-coastal contract development and manufacturing organization with a market cap of $38.23 billion. It offers capabilities spanning pre-Investigational New Drug development to commercial manufacturing and packaging for a wide range of therapeutic dosage forms primarily focused on small molecules. The company also provides therapeutic development, end-to-end regulatory support, clinical and commercial manufacturing, aseptic fill/finish, lyophilization, packaging, and logistics services to the global pharmaceutical market. Despite its extensive operations, the company has been struggling with an operating margin of -3.07% and sales of $89.19 million.
Financial Strength Breakdown
Societal CDMO Inc's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 0 positions it worse than 0% of 675 companies in the Drug Manufacturers industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just -1.58, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.11 indicates a struggle in handling existing debt levels. Furthermore, the company's debt-to-Ebitda ratio is 40.44, which is above Joel Tillinghast's warning level of 4 and is worse than 97.95% of 584 companies in the Drug Manufacturers industry. Tillinghast said in his book “Big Money Think's Small: Biases, Blind Spots, and Smarter Investing” that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Profitability Breakdown
Societal CDMO Inc's low Profitability rank can also raise warning signals. Societal CDMO Inc's Operating Margin has declined over the past five years ((-98.13%)), as shown by the following data: 2018: 16.50; 2019: 25.95; 2020: -12.55; 2021: 0.55; 2022: 0.31. Additionally, Societal CDMO Inc's Gross Margin has also declined over the past five years, as evidenced by the data: 2018: 44.20; 2019: 48.62; 2020: 18.59; 2021: 26.30; 2022: 25.65. This trend underscores the company's struggles to convert its revenue into profits.
Growth Prospects
A lack of significant growth is another area where Societal CDMO Inc seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -28.1 per year over the past three years, which underperforms worse than 93.64% of 912 companies in the Drug Manufacturers industry. Stagnating revenues may pose concerns in a fast-evolving market.
Over the past five years, Societal CDMO Inc has witnessed a decline in its earnings before interest, taxes, depreciation, and amortization (EBITDA). The three-year growth rate is recorded at -64.3, while the five-year growth rate is at -48.4. These figures underscore potential challenges in the company's profitability. Lastly, Societal CDMO Inc predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights the firm's unparalleled position for potential underperformance. While Societal CDMO Inc has a rich history and extensive operations, its declining margins, stagnating revenues, and increasing debt levels paint a concerning picture for the future. Investors should tread carefully and consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
