Company Profile: Glaukos Corporation
I am profiling an interesting medical company this week, check out Glaukos Corporation below.
What is Glaukos Corporation?
Glaukos Corporation (Glaukos) is an American company trading on the New York Stock Exchange (NYSE) that operates in the area of glaucoma treatment and research. Glaucoma is one of the leading causes of blindness and occurs when fluid inside the eye does not drain properly thus resulting in a build-up of pressure within the eye that can damage the optic nerve.
Glaukos launched its iStent in the United States in 2012. The iStent may be the smallest medical device ever approved by the Food and Drug Administration as its only 1.0mm long and 0.33mm wide! The iStent is inserted into your eye, during cataract surgery or otherwise, and helps to control the increased pressure in your eye associated with glaucoma by creating a bypass between the front part of your eye and its natural drainage pathway to get the fluid moving in your eye. The company website has a great deal more information about this amazing product if you want to further your research. This product and industry would seem to have a great deal of potential giving the aging population and prevalence of diabetes which is a factor in getting glaucoma.
As stated many times on this site, I, nor ZSM Creative Inc. operating as The Capital Pink, are financial advisors and have no financial accreditations whatsoever. Some basic evaluation tools are applied to this stock along with some commentary but this should only serve as a starter for your further research. The information below is only current to the day this post was written which may or may not be the same day as this post was published so please update the ratios and numbers to the current day before relying on them as they may have significantly changed (see How Do I Evaluate a Stock? (Part One) for information on where to find the ratios and numbers online). Please read the site’s Legal Disclaimer. Also, I, nor ZSM Creative Inc. operating as The Capital Pink, own Glaukos stock and are not affiliated with them in any manner.
What is Glaukos’ stock doing?
Before we get to the numbers, here are some highlights from Glaukos’ Press Release dated September 14, 2017 about its Growth Strategy:
· It is conducting a clinical trial of a different product called iDose Travopost which is designed to provide continuous levels of medication within the eye for extended periods of time to reduce pressure. It expects to review results from these trials with the FDA soon and commence Phase III trials in early 2018.
· It plans to pursue FDA approval of a three-stent byass standalone solution (iStent infinite) for a subset of glaucoma patients.
· Targets for 2017 net sales were downgraded for the full year from $162 million-$167 million to $155-$160 million. This downgrade was a reflection of impacts on the number of iStent procedures actually performed by physicians. These impacts included ability for patients to get insurance reimbursement (ie. less people will get the procedure done if they can’t get it covered by insurance), recent hurricane and reimbursement charges in Australia (not sure what this means but I suspect it again is related to ability to get insurance coverage), and finally, new competitors entering into this stent market.
Turning to the stock analysis, as at October 26, 2017, the numbers from our basic stock evaluation tools are as follows:
Stock price: $33.96 USD
The stock price alone doesn’t tell us much other than how much you could afford to buy. One stock or share would cost you $33.96 USD.
Price to Earnings (P/E): 94.3 (this is a forward P/E which just means it is stock price divided by the predicted earnings per share)
Recall this is the stock price divided by the earnings per share. If the P/E is high, you should expect to get some growth for having paid a bit more for the stock however, it could indicate the stock is overvalued. The industry average here according to Morningstar is 59.0 so Glaukos is considerably higher than the industry average. To put this figure into perspective, the market is giving Glaukos a value equal to 94 years of its earnings. The market is suggesting this is a stock in which they expect growth.
Dividend Yield: No dividends paid at this time
Dividend paying stocks are something many investors look to buy as they are like an interest rate on your shares. Dividend payouts are discretionary.
Earnings per Share (EPS): -$0.04 (over the last twelve months)
This figure will tell you a great deal about the growth of the company. It takes what the company earns and divides it by the number of shares outstanding. It is essentially the profit allocated to each share of the company. The bigger the number the better because the more the company earns, the more attractive it is to investors. EPS that is increasing every quarter shows earnings momentum and shows growth potential.
Glaukos’ EPS at the end of 2015 was -2.13 and end of 2016 was 0.12. So, its EPS of -$0.04 is really quite low however, the iStent was just launched in 2012.
Revenue: $140 Million
Increasing revenue is a good sign that the company is growing. If you look at past revenue figures, Glaukos’ Revenue has grown every year from starting with $21 million in 2013, $46 million in 2014, $72 million in 2015 and $114 million in 2016.
Return on Equity: -0.98%
This figure tells you what sort of return the company is getting on the shareholders money. An increasing ROE is a good sign. Glaukos’ ROE last year was 4.26%. Glaukos’ ROE over the last twelve months is negative. Recall that many investors closely study the ROE of a company to determine what type of return the company is providing to the shareholders based on the amount of equity (or shareholder money) in the company. How much profit is the company really making with all that money the shareholders (i.e. you and I when we buy a stock) have put into the company? The ratio is net income divided by equity (shareholder money).
The fact that ROE for Glaukos is negative may not tell the whole story on its health. You may also want to look at what its actual cash flow is for the year to get a better sense of its health. Here, Glaukos has free cash flow of $7 million.
Market Capitalization: $1.2 Billion
Glaukos would be solidly in the medium cap stock bracket. Recall that medium cap stocks generally provide growth and safety although not always as Glaukos would appear to be more of a growth stock given its ratios and financials.
Net Profit Margin: -8%
This ratio tells us what profit is left over after the company pays its expenses for the year (net profit/revenue). The more money it keeps, the better. High net profit margins mean that a company is good at keeping profit after expenses are paid, which may mean they are adept at keeping their expenses down. It is a good idea to compare these over an industry to see what companies are good at operating and maintaining a high net profit margin.
Here, Glaukos is not keeping any profit for each dollar of sales and is in the negative. This is likely due to its large expenses in promoting and selling the iStent.
Cash Flow per Share: $0.11 (end 2016)
Recall that this number is the cash flow through the business divided by the number of shares outstanding. It represents the net cash a company can produce per share and many investors consider this a better indicator of a company’s health than the more popular, earnings per share ratio. A higher value usually indicates the company is in a healthier position.
This ratio should be considered along with the EPS figure for a better picture of the company’s health as there should not be a wide discrepancy between the two figures. If there are large variances between those numbers, you may want to consider if there were large, non-recurring one-time items that account for the large variance.
Price to Sales (P/S): 8.6
This ratio compares the total market value of the company with its sales revenues. There is not a great deal of manipulation a company can do with its sales data so this can be a good indicator of how well the company is doing. Recall that a lower ratio relative to its peers in the industry can indicate a potentially good investment opportunity. Morningstar indicates the industry average is 4.5. Here, investors are paying $8.60 for every dollar of sales. So, lower is generally more favourable as you are paying less for each dollar of sales.
Price to Book (P/B): 9.2
This compares the stock price with how much the stock would be worth if the company was liquidated or sold off. If the ratio is greater than one, you are paying more for the stock than the stock’s liquidation value. Glaukos is at 9.2 and the industry average is 5.
Price to Cash Flow (P/CF): 86.7
Having cash left over after expenses are paid off is crucial to remaining in business so this is a good indicator about the health of a company. Generally lower is better as it could indicate the company is obtaining large cash flows not yet reflected in the stock price. Morningstar indicates the industry average for this industry is 28 whereas Glaukos is at 86.7.
So, what should one of think of the Glaukos stock given these figures? Well clearly the entrance of a new competitor in the eye stent space is of concern however, in the long range, the demand for the product overall from both Glaukos and its competitors should remain steady given aging demographics. As well, it appears its costs of doing business and getting the product out to the market are considerable and that is reflected in many of its low figures. What do you think? Is Glaukos poised for more growth in this area or are large growth gains over given competition and other negative impacts mentioned in the press release?
*Top photo by Matt Briney on Unsplash