LABS future stock price with an Epidiolex exclusive using valuation model of Pf=EPS x P/E where Pf is future stock price, EPS is earnings per share driven LABS profit margin multiplied by sales and divided by number of shares outstanding. P/E ratio is the amount an investor is willing to pay today for one share for each dollar of future earnings. The P/E ratio is usually derived from historical data representing the segment that the company operates in and it's rate of earnings growth. A mature company like Ford or Unilever may have a P/E ratio of around 5. NVIDIA's P/E ratio has changed because it has a new avenue of revenue growth within the realm of artificial intelligence based hardware sales. A newer company with non-linear growth rates in it's earnings could have a P/E from 20 to 30. So let's start.
1) From Q4, '22 CC, LABS referenced annual sales of Epidiolex at around $900 million per year
2) From Q1, '23 CC, LABS referenced their profit margin to be, (gross margins 10 to 15%)
3) Share outstanding, 390.1 million
4) From Q4, '23, LABS referenced growth rate of about 20% (not including success on over 20 clinical trials currently in their pipeline)
EPS on Epidiolex
$900 million x 10% (not 15%) = $ 90 million
$90 million / 390.1 million shares = $.23 EPS
P/E
Using a 20% growth rate, higher than normal compared to their established pharmaceutical peers, I will use a more aggressive P/E ratio of 15 so as not to reflect any hyper growth and a higher P/E beyond 15
Pf for LABS stock price
Pf= .23 x 15 = $3.45 (not including $.20 per share in cash on their books)
So using the standard approach of a valuation model, LABS target stock price is over $3 per share with the Epidiolex deal.
This should only be used as a guide because investors may have a higher tolerance for risk and looking for growth opportunities which could push the P/E ratio to 20+.