CRISPR Therapeutics AGs (NASDAQ:CRSP) Stock Is Rallying But Financials Look Ambiguous: Will The Momentum Continue? – Simply Wall St

Posted: September 21, 2020 at 1:53 am

CRISPR Therapeutics (NASDAQ:CRSP) has had a great run on the share market with its stock up by a significant 19% over the last three months. However, we decided to pay attention to the companys fundamentals which dont appear to give a clear sign about the companys financial health. Specifically, we decided to study CRISPR Therapeutics ROE in this article.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for CRISPR Therapeutics

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) Shareholders Equity

So, based on the above formula, the ROE for CRISPR Therapeutics is:

2.1% = US$20m US$911m (Based on the trailing twelve months to June 2020).

The return is the income the business earned over the last year. So, this means that for every $1 of its shareholders investments, the company generates a profit of $0.02.

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or retain, we are then able to evaluate a companys future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that dont necessarily bear these characteristics.

It is quite clear that CRISPR Therapeutics ROE is rather low. Even compared to the average industry ROE of 14%, the companys ROE is quite dismal. Hence, the flat earnings seen by CRISPR Therapeutics over the past five years could probably be the result of it having a lower ROE.

Next, on comparing with the industry net income growth, we found that CRISPR Therapeutics reported growth was lower than the industry growth of 27% in the same period, which is not something we like to see.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stocks future looks promising or ominous. Is CRISPR Therapeutics fairly valued compared to other companies? These 3 valuation measures might help you decide.

CRISPR Therapeutics doesnt pay any dividend, meaning that potentially all of its profits are being reinvested in the business. However, this doesnt explain why the company hasnt seen any growth. So there could be some other explanations in that regard. For instance, the companys business may be deteriorating.

Overall, we have mixed feelings about CRISPR Therapeutics. Even though it appears to be retaining most of its profits, given the low ROE, investors may not be benefitting from all that reinvestment after all. The low earnings growth suggests our theory correct. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the companys future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. *Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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CRISPR Therapeutics AGs (NASDAQ:CRSP) Stock Is Rallying But Financials Look Ambiguous: Will The Momentum Continue? - Simply Wall St

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