Advertisement
Singapore markets closed
  • Straits Times Index

    3,224.01
    -27.70 (-0.85%)
     
  • Nikkei

    40,351.51
    +183.44 (+0.46%)
     
  • Hang Seng

    16,541.42
    +148.58 (+0.91%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Bitcoin USD

    70,867.07
    +1,379.05 (+1.98%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • Dow

    39,807.37
    +47.29 (+0.12%)
     
  • Nasdaq

    16,379.46
    -20.06 (-0.12%)
     
  • Gold

    2,254.80
    +16.40 (+0.73%)
     
  • Crude Oil

    83.11
    -0.06 (-0.07%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • FTSE Bursa Malaysia

    1,533.65
    +3.05 (+0.20%)
     
  • Jakarta Composite Index

    7,288.81
    -21.28 (-0.29%)
     
  • PSE Index

    6,903.53
    +5.36 (+0.08%)
     

Seattle Genetics’ Valuation: How Does It Compare?

Seattle Genetics' 1Q16 Earnings: What Can We Expect?

(Continued from Prior Part)

Valuation multiples

As Seattle Genetics (SGEN) is a biotechnology company, it has huge research and development expenses. The company has reported losses each year. In this case, we believe that the enterprise-value-to-revenue multiple is the best measure for valuing Seattle Genetics (SGEN) and similar companies.

Forward EV-to-revenue multiples

EV-to-revenue multiples are often used to estimate a company’s valuation. A low EV-to-revenue multiple represents an undervalued company while a higher EV-to-revenue multiple represents an overvalued company. On April 18, 2016, the company was trading at a forward EV-to-revenue multiple of ~10.5x. Based on the last two years’ multiple range, SGEN’s current valuation is moderately high, with its EV-to-revenue multiple ranging from ~7.0x to ~17.0x.

ADVERTISEMENT

The industry currently trades at a forward EV-to-revenue multiple of ~5.4x. Competitors ARIAD Pharmaceuticals (ARIA), Incyte (INCY), and Vertex Pharmaceuticals (VRTX) have forward EV-to-revenue multiples of 6.1x, 12.4x, and 8.2x, respectively.

Dividend yield

As the company reported losses due to huge research and development costs, it did not declare a dividend in 2015. The dividend yield for the Healthcare Select Sector SPDR ETF (XLV) was ~1.5%.

To divest risk, investors could consider ETFs such as the First Trust NYSE Arca Biotechnology Index ETF (FBT), which holds ~3.5% of its total assets in Seattle Genetics, or the SPDR S&P Biotech ETF (XBI), which holds ~1.0% of its total assets in Seattle Genetics. XBI also holds 1.4% of its total assets in Achillon Pharmaceuticals (ACHN), 1.3% in Prothena (PRTA), 1.6% in Ophthotech (OPHT), and 1.3% in Myriad Genetics (MYGN).

Browse this series on Market Realist: