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About Takeda Pharmaceutical
Per special request from one of our viewers, Takeda Pharmaceutical’s stock (NYSE: TAK) is next on the stock analysis article docket, and happily so.
Although we have done our fair share of formal analysis on major American pharmaceutical companies in the past, it’s about the right time to take a trip far west of the border over to one of the world’s most interesting regions (not to mention one of the world’s most intricate, fascinating economies as well), Japan.
After all, that’s where pharmaceutical gargantuan Takeda Pharmaceuticals is headquartered, specifically in Tokyo.
Actually, it appears to be the largest in Japan.
Talk about a moat.
Like most other notable pharmaceutical companies, Takeda specializes in the research and development (R&D), manufacture, marketing and eventual sale of a gamut of products and treatments. According to TD Ameritrade’s platform, Takeda focuses on oncology (cancer), digestive system-related diseases, rare diseases, neurology as well as divisions focused on plasma and vaccine development.
Unfortunately, diseases and illnesses similar and/or related to the ones above aren’t likely subsiding anytime soon (although we sure hope they do), however, the indisputable fact of the matter is that this fact bodes well for Takeda (and other pharmaceutical companies for that matter) in the sense that it is better equipped to build and maintain a recession resistant business model, objectively speaking.
This will likely be highlighted within the company’s financials, of which we are just about ready to dig into.
Takeda’s stock financials
Trading at a relatively inexpensive (not necessarily relative to true value, however) share price of just north of $16, Takeda has a market capitalization of $51.4 billion, accompanied by a price-to-earnings (P/E) ratio of 34.28 all while the company also offers its shareholders an annual dividend of $1.06, which is presently yielding a whopping 6.55%.
Given these preliminary financials, even though Takeda’s share price isn’t expensive to the naked eye, from a valuation perspective it’s a bit overpriced, particularly as its present price-to-earnings ratio is notably higher than that of the fair value benchmark, which is 20.
Nevertheless, this is far from a good reason to completely shut out Takeda and move onto the next stock, but it is surely something investors should keep in mind as we proceed.
And don’t call us Shirley.
Instead, we opt to move onto the next handful of pertinent financial metrics, such as the company’s balance sheet.
According to Takeda’s balance sheet, its executive team has been able to put together a more than solid overall financial structure, as its total assets are nearly double the amount of its total liabilities. We’re happy to see that Takeda is seemingly well prepared for a major financial storm, however, from our perspective this sort of asset-heavy balance sheet structure is ultimately to be expected for a company with as much reach and resources as Takeda.
Impressive but not extraordinary.
Moving right along to the company’s income statement, Takeda has seen a general rise in total revenue over the last five years, as its total revenue in 2018 was reported as approximately $1.7 billion, rising the next year to nearly $2.1 billion, bumping up to around $3.2 billion in 2020, which was to be expected given the slew of threats stemming from COVID-19, to its latest reported figure of just north of $3.5 billion, as reported in 2022.
Clearly, stability in total, year-over-year total revenue is something you’re quite likely to get when investing in Takeda’s stock, but again, this isn’t anything completely abnormal or positively shocking.
While we’re not trying to sound overly critical regarding some of the company’s initial figures, massive, global pharmaceutical companies, consistently achieve high revenues, especially in recent history with the surge of new illnesses and diseases and therefore it isn’t incredibly impressive; it just signifies that its employees and executives are getting work done, which certainly is impressive in its own right but through the ears of an investor, the numbers do most of the talking and Takeda’s revenue figures are strong but nothing to write home about.
Shifting gears to the last of the big three financial statements, Takeda’s cash flow statement indicates that it has an innate ability to generate both positive cash flow as well as total cash from operations, which is impressive as well, but again, to be expected for a company with the size and scale of Takeda.
At the end of the day, we’re not trying to take anything away from the company, as its numbers are admirable, however, these numbers, at least so far, don’t make us feel especially compelled to pay a more than modest premium for the stock, as one would seemingly be forced to do at this current juncture.
Takeda’s stock fundamentals
Outsized trailing twelve month (TTM) net profit margins make us happy prospective investors, regardless of the company or the company’s industry, generally speaking.
Thankfully, Takeda has just that.
Specifically, according to TD Ameritrade’s platform the company’s TTM net profit margin currently sits at 5.69% to the industry’s average of nearly -80%.
We’d venture to say this is a material difference in the best way possible.
This is evidently one of the perks of being one of the world’s largest, most prominent, diversified pharmaceutical companies on planet Earth.
Combine this already strong annual net profit margin with the health of Takeda’s balance sheet and you’ll probably end up seeing more and more acquisitions moving forward, which will in turn fuel Takeda’s foreseeable total revenues as well as inch up its TTM net profit margin even further from the competition’s average.
Lastly, let’s glance over some of Takeda’s core TTM returns, particularly on assets and investment(s).
Specifically, the company’s TTM returns on assets and investment are both around 1%, whereas the industry’s averages are nearly 10% and 14%, respectively.
This tells us that the company isn’t nearly as efficient as it should be, however, in a sense this is to be expected given the aforementioned sheer size of Takeda; it’s certainly not as nimble and fast-moving as it was many decades ago. At the same token, the company has been around since 1781 and there aren’t many excuses that come instantly come to our minds regarding Takeda’s excessively low returns on its assets and investment(s), other than, of course, inefficient use and application of its resources, such as equipment, plants and other long-term investments they’ve previously made.
Should you buy Takeda Pharmaceuticals’ stock?
Simply put, we think there are both companies (and stocks for that matter) with more compelling risk-return profiles.
Although Takeda’s balance sheet is in a great state and its revenues have remained either consistent or growing, not to mention its excellent cash flow generation and admirable total cash from operations year-over-year, Takeda just doesn’t excite us.
Namely, its current price-to-earnings ratio (which isn’t the company’s fault, by the way), to us, at least, mixed with its current growth rate (or lack thereof) diverges too much and thus doesn’t warrant overpaying for shares in this company at this time.
Takeda simply isn’t growing fast enough to justify paying a premium for the stock.
Therefore, we think it is most prudent to give the company’s stock a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.