BUSINESS
Sage Therapeutics, Inc., a biopharmaceutical company, develops and commercializes medicines to treat central nervous system disorders. Its lead product candidate is ZULRESSO, an intravenous formulation of brexanolone for the treatment of postpartum depression (PPD) in adults. The company’s product pipeline also includes zuranolone, a neuroactive steroid, which is in Phase III clinical trials for treating PPD, major depressive disorders, treatment resistant disorders, generalized anxiety disorders, and bipolar depression; and SAGE-324, a compound that is in Phase II clinical trial to treat essential tremors, as well as has completed Phase I clinical trial for epilepsy and Parkinson’s diseases.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to be in line with the cost of capital, SAGE is expected to continue to be Value Creation neutral.
Sage Therapeutics has a current Value Trend Rating of F (Lowest Rating).
This rating combines complementary signals from two proprietary PTR measures of a stock’s attractiveness. Sage Therapeutics has a slightly negative Appreciation Score of 33 and a very low Power Rating of 4, resulting in the Lowest Value Trend Rating.
Sage Therapeutics’ stock is selling above targeted value. The current stock price of $25.75 compares to targeted value 12 months forward of $23.
This moderately low appreciation potential results in an appreciation score of 33 (67% of the universe has greater appreciation potential.)
Sage Therapeutics has a Power Rating of 4. (This very low Power Rating indicates that SAGE only has a better chance of achieving attractive investment performance over the near to intermediate term than 4% of companies in the universe.)
Factors contributing to this very low Power Rating include: recent price action has been extremely unfavorable; the Biological Products, Excluding Diagnstics comparison group is currently in an unfavorable position; and earnings estimate behavior for SAGE has been slightly negative recently.
INVESTMENT PROFILE
SAGE’s financial strength is high. Financial strength rating is 81.
Relative to the S&P 500 Composite, Sage Therapeutics Inc has significant Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that SAGE is extremely low risk. Relative weaknesses include: low historical profitability, and low expected growth. SAGE’s valuation is low: low dividend yield, low P/E ratio, and low price/book ratio. SAGE has unusually low market capitalization.
CURRENT SIGNALS
Sage Therapeutics’ current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; and falling leverage.
Sage Therapeutics’ current technical position is mixed. The stock price is in a 2.1 month up move. The stock has appreciated 55.3% from its prior low. The 200 day moving average is in a downtrend. The stock price is above its 200 day moving average.
ALERTS
Sage Therapeutics Inc (NASDAQ: SAGE) has recently enjoyed meaningful positive changes in investment behavior: the stock rose on very heavy volume.
In light of this we are reviewing our current Overall Rating of F. This review will be completed in the next several days.
On 2/14/24, Sage Therapeutics Inc (NASDAQ: SAGE) stock enjoyed a major increase of 11.9%, closing at $25.75. Moreover, exceptionally high trading volume at 317% of normal accompanied the advance. The stock has risen 4.2% during the last week but has been extremely weak relative to the market over the last nine months.
CASH FLOW
In 2022, Sage Therapeutics experienced a very significant reduction in cash of -$469.80 million (-27%). Sources of cash were much lower than uses. Cash consumed from 2022 EBITDA totaled -$545.87 million. Non-operating sources contributed +$14.20 million (-3% of EBITDA). In 2022, there were no cash taxes paid. Withdrawal of investment from the business totaled +$11.81 million (-2% of EBITDA). On a net basis, debt investors pulled out -$6.30 million (+1% of EBITDA) while equity investors contributed +$56.35 million (-10% of EBITDA).
Sage Therapeutics’ Non-operating Income, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by a downtrend for the Sage Therapeutics Peer Group. In most years, Sage Therapeutics was in the second quartile and top quartile. Currently, Sage Therapeutics is slightly below median at -3% of EBITDA (+$14.20 million).
Sage Therapeutics’ Cash Taxes, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Sage Therapeutics Peer Group as well. In most years, Sage Therapeutics was in the top quartile and second quartile. Currently, Sage Therapeutics is at the upper quartile at 0% of EBITDA ( $0.00 million).
Sage Therapeutics’ Business Re-investment, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by a similar trend for the Sage Therapeutics Peer Group. In most years, Sage Therapeutics was in the second quartile and third quartile. Currently, Sage Therapeutics is substantially below median at -2% of EBITDA (+$11.81 million).
Sage Therapeutics’ Debt Investors, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by an uptrend for the Sage Therapeutics Peer Group. In most years, Sage Therapeutics was in the second quartile and third quartile. Currently, Sage Therapeutics is at the upper quartile at +1% of EBITDA (-$6.30 million).
Sage Therapeutics’ Equity Investors, %EBITDA has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Sage Therapeutics Peer Group. In most years, Sage Therapeutics was in the second quartile and lower quartile. Currently, Sage Therapeutics is substantially above median at -10% of EBITDA (+$56.35 million).
Sage Therapeutics’ Change in Cash, %EBITDA has experienced a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Sage Therapeutics Peer Group. (Since 2020 Change in Cash, %EBITDA has experienced a very sharp decline.) In most years, Sage Therapeutics was in the third quartile and top quartile. Currently, Sage Therapeutics is above median at +86% of EBITDA (-$469.80 million).
Sage Therapeutics’ Cash, %Revenue has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by an opposite trend for the Sage Therapeutics Peer Group. In most years, Sage Therapeutics was in the top quartile. Currently, Sage Therapeutics is upper quartile at +16556%.
PROFITABILITY
Sage Therapeutics’ operating performance since 2020 is unavailable.
The productivity of Sage Therapeutics’ assets declined over the full period 2013-2023: asset turnover has suffered a very strong overall downtrend.
Sage Therapeutics’ return on equity is lower quartile (-80.3%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is lower quartile (-69.1%) reflecting asset turnover that is lower quartile (0.01X) and lower quartile pretax margin (-5780%).
Tax “keep” rate (income tax management) is at the upper quartile (100.0%) resulting in after tax return on assets that is lower quartile.
Financial leverage (leverage) is lower quartile (1.16X).
GROWTH RATES
There are no significant differences between Sage Therapeutics’ longer term growth and growth in recent years.
Sage Therapeutics’ historical income statement and balance sheet growth are not available.
Annual revenue growth has been -38.1% per year.
Total asset growth has been -3.0% per year.
Annual E.P.S. growth is not available.
Equity growth has been 18.0% per year.
Sage Therapeutics’ consensus growth rate forecast (average of Wall Street analysts) is -22.1% — substantially below the average of the historical growth measures.
Relative to the Sage Therapeutics Peer Group, Sage Therapeutics’ historical growth measures are erratic. Equity growth (18.0%) has been slightly below median. Total asset growth (-3.0%) has been lower quartile. Revenue growth (-38.1%) has been lower quartile. E.P.S. growth is unavailable.
Consensus growth forecast (-22.1%) is lower quartile.
PRICE HISTORY
Over the full time period, Sage Therapeutics’ stock price performance has been variable and significantly below market. Between July, 2014 and February, 2024, Sage Therapeutics’ stock price fell -9%; relative to the market, this was a -65% loss. Significant price moves during the period: 1) May, 2023 – October, 2023: -62%; 2) December, 2020 – May, 2022: -65%; 3) March, 2020 – December, 2020: +209%; 4) June, 2019 – March, 2020: -84%; 5) September, 2017 – January, 2018: +205%; and 6) August, 2016 – August, 2017: +121%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -42.2% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through January, 2024 of -42.2% is lower quartile relative to Sage Therapeutics Peer Group.
Current 5-year total return performance of -29.0% is lower quartile relative to the S&P 500 Composite.
Through January, 2024, with lower quartile current 5-year total return of -29.0% relative to S&P 500 Composite, Sage Therapeutics’ total return performance is lower quartile relative to Sage Therapeutics Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, SAGE’s overall valuation is normal. Ratio of enterprise value/revenue is upper quartile. Ratio of enterprise value/assets is slightly above median. Price/equity ratio is at the lower quartile. Price/earnings ratio is unavailable. Ratio of enterprise value/earnings before interest and taxes is unavailable.
Relative to Sage Therapeutics Peer Group, SAGE’s overall valuation is low. Ratio of enterprise value/revenue is upper quartile. Ratio of enterprise value/assets is at the lower quartile. Price/equity ratio is lower quartile. Price/earnings ratio is unavailable. Ratio of enterprise value/earnings before interest and taxes is unavailable.
Sage Therapeutics has a major value gap compared to the median valuation. For SAGE to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 136.86X to 6.69X. If SAGE’s ratio of enterprise value/revenue were to fall to 6.69X, its stock price would be lower by $-25 to $1.
For SAGE to fall to lower quartile valuation relative to the Sage Therapeutics Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 136.86X to 3.75X. If SAGE’s ratio of enterprise value/revenue were to fall to 3.75X, its stock price would decline by $-25 from the current level of $26.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to be in line with the cost of capital, SAGE is expected to continue to be Value Creation neutral.
Sage Therapeutics’ current Price Target of $23 represents a -10% change from the current price of $25.75.
This moderately low appreciation potential results in an appreciation score of 33 (67% of the universe has greater appreciation potential.)
Reinforcing this moderately low Appreciation Score of 33, the low Power Rating of 4 contributes to an Value Trend Rating of F.
Sage Therapeutics’ current Price Target is $23 (+31% from the 2022 Target of $18 but -10% from the 02/14/24 price of $25.75). This rise in the Target is the result of a -18% decrease in the equity base and a +59% increase in the price/equity multiple. The forecasted decline in cost of equity has a very large positive impact on the price/equity multiple and the forecasted decline in growth has a very slight positive impact as well. The forecasted flat return on equity has no impact.
PTR’s return on equity forecast is 4.0% — in line with our recent forecasts. Forecasted return on equity erratic but little changed between 2014 and 2022. The current forecast is steady at the 2014 low of 4%.
PTR’s growth forecast is 0.0% — in line with our recent forecasts. Forecasted growth enjoyed a dramatic, variable increase between 2014 and 2022. The current forecast is well below the 2014 peak of 5%.
PTR’s cost of equity forecast is 3.1% — in line with recent levels. Forecasted cost of equity exhibited a modest, erratic increase between 2018 and 2022. The current forecast is steady at the 2018 low of 4.6%.
At Sage Therapeutics’ current price of $25.75, investors are placing a negative value of $-782 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 25.0% per year, and a return on equity of 4.0% versus a cost of equity of 5.0%.
PTR’s 2024 Price Target of $23 is based on these forecasts and reflects an estimated value of existing assets of $19 and a value of future investments of $4.
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