Curis Inc (NASDAQ:CRIS) is a company I’ve been following for a while, and one that I believe the market is over-hyped about. My concerns are mainly 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. It’s crucial to understand if a company has a strong future based on its current operations and financial status.
First, a short introduction to the company is in order. Curis, Inc., a biotechnology company, focuses on the development and commercialization of drug candidates for the treatment of human cancers in the United States. Since starting in 2000 in United States, the company has now grown to a market cap of US$111.50M.
The first thing that struck me was the pessimistic outlook for CRIS. A consensus of 4 US biotechnology analysts covering the stock indicates that its revenue level is expected to decline by 8.53% over the next financial year. In addition to this, CRIS is currently loss-making, delivering a recent bottom-line of -US$53.32M. With a declining top-line, moving towards positive earnings becomes harder, which is a concerning issue.
Investors tend to get swept up by a company’s growth prospects and promises, but a key element to always look at is its financial health in order to minimize the downside risk of investing. Two major red flags for CRIS are its debt level exceeds equity on its balance sheet, and its cash from its core activities is only enough to cover a mere -116.36% of this large debt amount. Furthemore, its debt-to-equity ratio has also been increasing from 87.20% five years ago. Although, its interest income is able to cover interest payment, cash management is still not optimal and could still be improved. Or the very least, reduce debt to a more prudent level if cash generated from operating activities is insufficient to cushion for potential future headwinds. The current state of CRIS’s financial health lowers my conviction around the sustainability of the business going forward. CRIS 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 CRIS as a business is its low level of fixed assets on its balance sheet (0.50% 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. CRIS has virtually no fixed assets, which minimizes its downside risk.
The current share price for CRIS is US$0.65. With 165.63 million shares, that’s a US$111.50M market cap, which is in-line with its peers based on its industry and adjusted for its asset level. Currently, it’s trading at a fair value, with a PB ratio of 4.47x vs. the industry average of 4.33x.
CRIS is a fast-fail research for me. Good companies should have good financials to match, which isn’t the case here. Given investors have limited time to analyze a universe of stocks, CRIS doesn’t make the cut for a deeper dive. 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.