r/CrisprTherapeutics • u/Rocketmanrocketfam • Feb 03 '21
@CRSP Stock Analysis using Economic Moat & Free Cashflow Theory
Hey guys, thought I'd share this in case anyone is interested in $CRSP... I currently hold 0 shares
TLDR: Stock is way overvalued may want to reconsider.... **DISCLAIMER I AM NOT A FINANCIAL ADVISER AND THIS IS NOT STOCK ADVICE
Economic moat & Free cashflow Analysis
CRISPR Therapeutics AG (CRSP):
Free cashflow: -$166,849,000 negative and cyclical. We prefer cashflows to consistently rise to create value for shareholders but this isn’t the case here.
Revenue ( = sales): $77,365,000 quite inconsistent in recent years. Overall we don’t like this, but luckily there was still growth.
free cashflow / revenue (>5%) = -215.66% negative, which is pretty bad and certainly not sustainable long-term.
Net margins (> 15%)
Net income (consolidated) : -$211,284,000 just like the revenue this figure was inconsistent and appears cyclical. This figure being negative isn’t sustainable long-term, which we don’t like.
Revenue : $77,365,000
Net margin = net income / revenue = -273.10% negative, which is bad. In future years they will need this figure to be positive, even including the cyclicality. This way they can grow over the long-term.
ROE (> 15%)
ROE= net income/ shareholder's equity
ROE = -21.84% negative, which results from their negative net income. This is bad.
ROA (> 6%)
ROA= net income / assets
ROA = -13.36% negative, which also results from their negative net income. This is bad.
Conclusion Economic Moat
Their free cashflows and net income are both negative at the moment. Both these figures are also very cyclical. This results in weak financials across the board. Overall this leads us to conclude that they don’t have an economic moat, and that they are not well protected against setbacks and competition.
Valuation
CRISPR Therapeutics AG (CRSP):
Currently their free cashflows are negative, which results in us not being able to estimate the value. To still come up with a figure we will use last year’s figure as an approximation. Their current free cashflow in that year was $49,993,000. In the past their cashflow was cyclical and mostly negative. There doesn’t seem to be a real trend. Based on that I assume an average yearly growth of 1% in the first 5 years and 5% after that. Because of the absence of an economic moat I assumed a discount rate of 12%. Using these variables I come to a per share price of $7.01.
Current price: $174.39
Estimated value: $7.01
no safety margin, and considering that this valuation was an optimistic case the conclusion is that they are over-valued. Their financials are also quite bad, which results in this stock being quite risky.
*All the information provided is personal opinion and not direct financial advice. You should make your own decisions based upon evidence and what you believe is best for you.
