Innoviva Stock Dissection
Welcome back to Stocks4Docs! Thank you for joining us. This week we will be doing a stock dissection and diving into a small company called Innoviva, known as INVA. This company is in the healthcare and biotech sectors but doesn’t develop drugs. What do they do instead?
Innoviva carefully selects promising drugs from large companies, does a deep dive into the market value and relevant customer profile, and then sells them. They then split the profits with the larger company.
Why does this work?
Giant corporations often have too many drugs to really focus on selling each one, so Innoviva does it for them. By keeping their focus small, they can really push individual products. It’s the perfect mutualistic relationship!
So how do we decide if this company is worth investing in? Let’s take a closer look.
Who is Innoviva?
Innoviva is a small company with only five listed employees. They’re currently focusing on selling four different drugs, but are looking to expand as FDA approvals go through. The company’s value has increased 60% in the last year alone, making them a rising star to keep your eye on.
Why Invest in Biotech?
In the past, biotech has underperformed compared to other industries. But as the tech industry begins to plateau, biotech just might be the next to skyrocket.
As physicians, we tend to have an inherent interest or basic understanding of biotechnology. This gives us a great advantage when it comes to learning about and investing in the industry.
Discovering Companies Like Innoviva
One of the best ways to find new companies is to keep your eye on prescription labels. Innoviva has been focusing on respiratory medications such as long-term steroids, which have become more prevalent during the pandemic. By checking labels and keeping tabs on where products come from, you have the advantage of finding small, up-and-coming companies such as Innoviva. This should be your goal as an investor!
Once you find an interesting company, do some research. The company values should align with your own. If you’re not passionate about the company or what it stands for, it’s probably not the best investment opportunity for you. If you’re happy with their values, it’s time to start looking at the big four values.
Diving Into the Four Values
These are some of the first things you need to look at when researching a new company. They’ll give you a great idea of how the company is doing, whether it’s a good fit for your investment, and how it will do long-term. Let’s break them down!
- Circle of Competence. Is this company in an industry that you know about? If not, are you interested or capable of learning about it? As a part of the healthcare sector, Innoviva is in an industry that many physicians are already comfortable with.This already gives you a significant advantage over other investors.
- Moat. A moat is a durable, competitive advantage that keeps a company from falling to its competitors. Innoviva’s is the sheer specificity of its industry. The company is extremely niche, and can, in a way, pick and choose its industry. By focusing on different types of drugs, Innoviva can shift where it falls in healthcare or biotech.
As we mentioned before, Innoviva has focused on respiratory drugs, which has put it in an excellent position as we navigate the pandemic.
- Management. Innoviva is managed by both a CEO and an executive board. The board is composed of six people, three of which are physicians. Three of them are also women, which is a great plus for diversity. Finally, the chairperson has a pharmaceutical background, making the board a well-rounded group of people. Though it can be hard to find this information on smaller companies, it’s worth looking into.
The Return on Equity is an incredible 28%- it’s typically good to aim for 15%, so Innoviva is doing great there.
Not as great is their ROIC, or Return on Invested Capital. This is an unfortunate -3%. The ROIC is basically how much you’re making off the capital that’s been invested, or how well the company is using your money,
Another way to think about this is gas in a car. If you put a certain amount of money in, how far will you get with it?
Though the ROIC isn’t ideal, it’s just a single data point. As physicians it’s important for us to consider as many data points as we can, just like when diagnosing a patient.
Finally, Innoviva’s debt is less than two years. This overall paints a pretty good picture of their management.
- Price. Innoviva is currently priced really well. Let’s break down how:
– Stock for the company is currently listed at $16.69
– If you calculate the intrinsic value, you get a sticker price of around $52
– The margin of safety price is 50% off the sticker price, making it $26
This means that the company is undervalued. It’s priced much lower than it is worth. If Innoviva seems like a good fit with your interests, now is a great time to consider buying stock. This is what value investors look for!
Worth Your Consideration
We selected Innoviva for our stock dissection this week because we feel that it is a company worth looking into. From its quick growth and low stock price to the solid management and niche moat, INCA could be the investment opportunity you’ve been looking for. Let us know what you think! Is Innoviva worth investing in?
As always, please reach out with any questions, comments, or suggestions for future episodes! Thanks so much for tuning in, and we’ll see you again next week.
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