Alpine Immune Sciences Inc (NASDAQ:ALPN) has been on my radar for a while, and I’ve been consistently disappointed in its investment thesis. The biggest risks I see are around the sustainability of its future growth, the opportunity cost of investing in the stock accounting for the returns I could have gotten in other peers, and its cash-to-debt management. Whether a company has a good future, in terms of its business operation and financial health, is an important question to address.
Firstly, a quick intro on the company – Alpine Immune Sciences, Inc., a development-stage specialty pharmaceutical company, engages in the discovery and development of protein-based immunotherapies for the treatment of cancer, inflammatory disorders, and other diseases. Founded in , it currently operates in United States at a market cap of US$108.41M.
With falling revenues (year-on-year growth rate of -41.32%) I decided to dig a bit deeper into whether this was a one-off occurrence. A consensus of US biotechnology analysts covering the stock indicates the future doesn’t look much better. Looking at their predictions, ALPN’s revenue level is estimated to fall by -99.96% by 2021. In addition to this, ALPN is currently loss-making, delivering a recent bottom-line of -US$7.78M. With a declining top-line, moving towards positive earnings becomes harder, which is a concerning issue.
ALPN’s financial status is a key element to determine whether or not it is a risky investment – a key aspect most investors overlook when they focus too much on growth. A big red-siren warning for ALPN is its low level of cash generated from its core operating activities. Given its debt level is relatively minimal (-329.20% of equity), the fact that ALPN’s cash only covers a mere -329.20% of debt makes me uneasy. However, management has been able to reduce debt over the past five years, and it generates enough earnings to cover annual interest payments. There’s room for improvement on the cash management side of things, but its overall debt level and interest coverage somwehat alleviates my doubts around the sustainability of the business going forward. ALPN has high near term liquidity, with short term assets (cash and other liquid assets) amply covering upcoming one-year liabilities, as well as long-term commitments. One reason I do like ALPN as a business is its low level of fixed assets on its balance sheet (1.28% of total assets). When I think about the worst-case scenario in order to assess the downside, such as a downturn or bankruptcy, physical assets and inventory will be hard to liquidate and redistribute back to investors. ALPN has virtually no fixed assets, which minimizes its downside risk.
ALPN is now trading at US$7.83 per share. With 13.85 million shares, that’s a US$108.41M market cap, which is too low compared to its peers based on its industry and adjusted for its asset level. Currently, it’s undervalued by 204.71%, with a PB ratio of 1.37x vs. the industry average of 4.18x.
A good company is reflected in its financials, and for ALPN, the financials don’t look good. This is a fast-fail analysis, which means I won’t be spending too much time on the company, given that there is a universe of better investments to further research. For all the charts illustrating this analysis, take a look at the Simply Wall St platform, which is where I’ve taken my data from.