BUSINESS
Inotiv, Inc. provides drug discovery and development services to the pharmaceutical, chemical, and medical device industries; and sells analytical instruments to the pharmaceutical development and contract research industries. It operates through two segments, Contract Research Services and Research Products. The Contract Research Services segment offers screening and pharmacological testing, nonclinical safety testing, formulation development, regulatory compliance, and quality control testing services.
INVESTMENT RATING
NOTV is expected to be a modest Value Builder reflecting capital returns that are forecasted to be above the cost of capital.
Inotiv has a current Value Trend Rating of C (High Neutral).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing very contradictory signals. Inotiv has a very high Appreciation Score of 97 but a poor Power Rating of 30, with the High Neutral Value Trend Rating the result.
Inotiv’s stock is selling well below targeted value. The current stock price of $6.42 compares to targeted value 12 months forward of $31.
Inotiv’s very high appreciation potential results in an appreciation score of 97 (only 3% of the universe has greater appreciation potential.)
Inotiv has a Power Rating of 30. (Inotiv’s poor Power Rating indicates that it only has a higher likelihood of achieving favorable investment performance over the near to intermediate term than 30% of companies in the universe.)
Factors contributing to this poor Power Rating include: the Commercial Physical, Biological Research comparison group is currently in an unfavorable position; and recent price action has been unfavorable. An offsetting factor is the recent trend in Inotiv’s earnings estimates has been extremely favorable.
INVESTMENT PROFILE
Inotiv’s financial strength is average. Financial strength rating is 47.
Relative to the S&P 500 Composite, Inotiv Inc has slightly more Value than Growth characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that NOTV is extremely high risk. High historical growth is a positive for Inotiv. Relative weaknesses include: low forecasted profitability, low historical profitability, low financial strength, high stock price volatility, high financial leverage, and high earnings variability. Inotiv’s valuation is low: low dividend yield, low P/E ratio, and low price/book ratio. NOTV has unusually low market capitalization.
CURRENT SIGNALS
Inotiv’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; falling tax keep rate; and falling leverage.
Inotiv’s current technical position is mixed. The stock price is in a 0.7 month up move. The stock has appreciated 81.8% from its prior low. The 200 day moving average is in a downtrend. The stock price is above its 200 day moving average.
ALERTS
Recent meaningful positive changes in fundamentals have benefitted Inotiv Inc (NASDAQ: NOTV): the consensus estimate for September, 2025 increased significantly, and the consensus estimate for September, 2024 increased significantly.
In light of this we are reviewing our current Overall Rating of C. This review will be completed in the next several days.
On 2/26/24, Inotiv Inc (NASDAQ: NOTV) stock enjoyed a major increase of 15.1%, closing at $6.42. Moreover, this advance was accompanied by unusually high trading volume at 154% of normal. Relative to the market the stock has been weak over the last nine months but has risen 15.3% during the last week.
CASH FLOW
In 2023, Inotiv generated a very significant increase in cash of +$16.51 million (+87%). Sources of cash were much larger than uses. Cash generated from 2023 EBITDA totaled +$46.16 million. Non-operating uses consumed -$72.90 million (-158% of EBITDA). Cash taxes consumed -$7.62 million (-17% of EBITDA). Withdrawal of investment from the business totaled +$48.91 million (+106% of EBITDA). On a net basis, debt investors received -$11.95 million (-26% of EBITDA) while equity investors supplied +$13.92 million (+30% of EBITDA).
Inotiv’s Non-operating Income, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Inotiv Peer Group. In most years, Inotiv was in the top quartile and third quartile. Currently, Inotiv is substantially below median at -158% of EBITDA (-$72.90 million).
Inotiv’s Cash Taxes, %EBITDA enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Inotiv Peer Group. In most years, Inotiv was in the top quartile. Currently, Inotiv is at the lower quartile at -17% of EBITDA (-$7.62 million).
Inotiv’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Inotiv Peer Group. (Since 2021 Business Re-investment, %EBITDA has experienced a very sharp recovery.) In most years, Inotiv was in the lower quartile and top quartile. Currently, Inotiv is at the upper quartile at +106% of EBITDA (+$48.91 million).
Inotiv’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Inotiv Peer Group. (Since 2020 Debt Investors, %EBITDA has experienced a very sharp decline.) In most years, Inotiv was in the top quartile and lower quartile. Currently, Inotiv is slightly above median at -26% of EBITDA (-$11.95 million).
Inotiv’s Equity Investors, %EBITDA has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Inotiv Peer Group. (Since 2021 Equity Investors, %EBITDA has experienced a very sharp decline.) In most years, Inotiv was in the top quartile. Currently, Inotiv is at the upper quartile at +30% of EBITDA (+$13.92 million).
Inotiv’s Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Inotiv Peer Group. In most years, Inotiv was in the third quartile and top quartile. Currently, Inotiv is upper quartile at +36% of EBITDA (+$16.51 million).
Inotiv’s Cash, %Revenue has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Inotiv Peer Group. In most years, Inotiv was in the lower quartile and top quartile. Currently, Inotiv is at median at +6%.
PROFITABILITY
Inotiv’s return on equity has eroded very significantly since 2015. The current level is -13.1% versus the high of 11.5% and the low of -93.5%.
This very significant erosion was due to very strong negative trend in pretax operating return and very strong negative trend in non-operating factors.
The productivity of Inotiv’s assets declined over the full period 2014-2023: asset turnover has suffered a very strong overall downtrend although it experienced a very sharp recovery after the 2021 low.
Reinforcing this trend, pretax margin experienced a strong overall downtrend even as it recently stabilized from the 2022 level.
Non-operating factors (income taxes and financial leverage) had a significant negative influence on return on equity.
Inotiv’s return on equity is lower quartile (-13.1%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is substantially below median (-4.9%) reflecting asset turnover that is lower quartile (0.70X) and substantially below median pretax margin (-6.9%).
Tax “keep” rate (income tax management) is below median (81.7%) resulting in after tax return on assets that is substantially below median.
Financial leverage (leverage) is slightly above median (3.29X).
GROWTH RATES
There are no significant differences between Inotiv’s longer term growth and growth in recent years.
Inotiv’s historical income statement growth and balance sheet growth have diverged. Revenue growth has fallen short of asset growth; earnings growth has paralleled equity growth.
Annual revenue growth has been 27.9% per year.
Total asset growth has been 37.2% per year.
Annual E.P.S. growth has been 31.9% per year.
Equity growth has been 34.4% per year.
No consensus growth rate forecast is available for Inotiv.
Relative to the Inotiv Peer Group, Inotiv’s historical growth measures are consistently top quartile. Revenue growth (27.9%) has been upper quartile. Total asset growth (37.2%) has been upper quartile. Equity growth (34.4%) has been upper quartile. E.P.S. growth (31.9%) has been at the upper quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Inotiv’s stock price performance has been volatile and quite good. Between April, 2013 and February, 2024, Inotiv’s stock price rose +328%; relative to the market, this was a +35% gain. Significant price moves during the period: 1) October, 2023 – February, 2024: +236%; 2) July, 2023 – October, 2023: -74%; 3) October, 2022 – December, 2022: -76%; 4) June, 2022 – October, 2022: +116%; 5) November, 2021 – June, 2022: -82%; and 6) March, 2020 – November, 2021: +1495%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -54.3% 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 -54.3% is lower quartile relative to Inotiv Inc Peer Group.
Current 5-year total return performance of 19.0% is upper quartile relative to the S&P 500 Composite.
Through January, 2024, with upper quartile current 5-year total return of 19.0% relative to S&P 500 Composite, Inotiv’s total return performance is above median relative to Inotiv Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, NOTV’s overall valuation is low. Ratio of enterprise value/earnings before interest and taxes is upper quartile. Ratio of enterprise value/assets is lower quartile. Ratio of enterprise value/revenue is lower quartile. Price/equity ratio is lower quartile. Price/earnings ratio is unavailable.
Relative to Inotiv Peer Group, NOTV’s overall valuation is normal. Ratio of enterprise value/earnings before interest and taxes is upper quartile. Ratio of enterprise value/revenue is at median. Ratio of enterprise value/assets is below median. Price/equity ratio is lower quartile. Price/earnings ratio is unavailable.
Inotiv has a major value gap compared to median valuation. For NOTV to fall to lower quartile valuation, its current ratio of enterprise value/revenue would have to decline from the current level of 1.02X to 0.65X. If NOTV’s ratio of enterprise value/revenue were to decline to 0.65X, its stock price would be lower by $-8 to $-2.
For NOTV to achieve upper quartile valuation relative to the Inotiv Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 1.02X to 1.84X. If NOTV’s ratio of enterprise value/revenue were to rise to 1.84X, its stock price would increase by $19 from the current level of $6.42.
VALUE TARGETS
NOTV is expected to be a modest Value Builder reflecting capital returns that are forecasted to be above the cost of capital.
Inotiv’s current Price Target of $37 represents a +474% change from the current price of $6.42.
This very high appreciation potential results in an appreciation score of 97 (only 3% of the universe has greater appreciation potential.)
Notwithstanding this high Appreciation Score of 97, the low Power Rating of 30 results in an Value Trend Rating of C.
Inotiv’s current Price Target is $37 (+321% from the 2023 Target of $9 and +474% from the 02/26/24 price of $6.42). This dramatic rise in the Target is the result of a +29% increase in the equity base and a +227% increase in the price/equity multiple. The forecasted flat growth has no impact on the price/equity multiple and the forecasted increase in cost of equity has no impact either. However, the forecasted increase in return on equity has a huge positive impact.
PTR’s return on equity forecast is 10.2% — above our recent forecasts. Forecasted return on equity suffered a dramatic, erratic decline between 2015 and 2023. The current forecast is well above the 2020 low of 4%.
PTR’s growth forecast is 70.0% — in line with our recent forecasts. Forecasted growth enjoyed a dramatic, steady increase between 2019 and 2023. The current forecast is significantly above the 2019 low of 4%.
PTR’s cost of equity forecast is 9.0% — slightly above recent levels. Forecasted cost of equity enjoyed a dramatic, erratic decline between 2015 and 2023. The current forecast is above the 2020 low of 6.3%.
At Inotiv’s current price of $6.42, investors are placing a positive value of $8 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 70.0% per year, and a return on equity of 4.0% versus a cost of equity of 5.8%.
PTR’s 2025 Price Target of $37 is based on these forecasts and reflects an estimated value of existing assets of $4 and a value of future investments of $33.
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