Putting the Ratios & Signals Together For Cara Therapeutics, Inc. (NasdaqGM:CARA), Inovalon Holdings, Inc. (NasdaqGS:INOV)

Cara Therapeutics, Inc. (NasdaqGM:CARA) has a current MF Rank of 16366. Developed by hedge fund manager Joel Greenblatt, the intention of the formula is to spot high quality companies that are trading at an attractive price. The formula uses ROIC and earnings yield ratios to find quality, undervalued stocks. In general, companies with the lowest combined rank may be the higher quality picks.

Investors are always looking to gain any possible advantage in the stock market. Knowing the various risk and return possibilities for various types of stocks can be critical to positive performance. Creating a balanced equity portfolio may be the essential first step when thinking about diving into the equity markets. Investors may come from all different types of backgrounds, and they may face completely different situations. Each investor may need to identify their objectives and try to figure out what’s best for their specific situation. Investors may want to take a conservative approach to the markets. Others will be looking to go in full throttle with a very aggressive plan. Whatever the choice, it is important to note that picking stocks based on previous returns will never guarantee future returns. Investors have many choices they can make when looking to purchase stocks. Figuring out levels of risk, expectations of returns, and the overall investment time horizon can all play a big part in crafting the initial plan.

Free Cash Flow Growth (FCF Growth) is the free cash flow of the current year minus the free cash flow from the previous year, divided by last year’s free cash flow.  The FCF Growth of Cara Therapeutics, Inc. (NasdaqGM:CARA) is 0.832664.  Free cash flow (FCF) is the cash produced by the company minus capital expenditure.  This cash is what a company uses to meet its financial obligations, such as making payments on debt or to pay out dividends.  

The Free Cash Flow Score (FCF Score) is a helpful tool in calculating the free cash flow growth with free cash flow stability – this gives investors the overall quality of the free cash flow.  The FCF Score of Cara Therapeutics, Inc. (NasdaqGM:CARA) is 1.447505.  Experts say the higher the value, the better, as it means that the free cash flow is high, or the variability of free cash flow is low or both.

The Return on Invested Capital (aka ROIC) for Cara Therapeutics, Inc. (NasdaqGM:CARA) is -1.570342.  The Return on Invested Capital is a ratio that determines whether a company is profitable or not.  It tells investors how well a company is turning their capital into profits.  The ROIC is calculated by dividing the net operating profit (or EBIT) by the employed capital.  The employed capital is calculated by subrating current liabilities from total assets.  Similarly, the Return on Invested Capital Quality ratio is a tool in evaluating the quality of a company’s ROIC over the course of five years.  The ROIC Quality of Cara Therapeutics, Inc. (NasdaqGM:CARA) is -1.033936.  This is calculated by dividing the five year average ROIC by the Standard Deviation of the 5 year ROIC.  The ROIC 5 year average is calculated using the five year average EBIT, five year average (net working capital and net fixed assets).  The ROIC 5 year average of Cara Therapeutics, Inc. (NasdaqGM:CARA) is -3.452833.

Shareholder Yield

The Shareholder Yield is a way that investors can see how much money shareholders are receiving from a company through a combination of dividends, share repurchases and debt reduction.  The Shareholder Yield of Cara Therapeutics, Inc. (NasdaqGM:CARA) is -0.205918.  This percentage is calculated by adding the dividend yield plus the percentage of shares repurchased.  Dividends are a common way that companies distribute cash to their shareholders.  Similarly, cash repurchases and a reduction of debt can increase the shareholder value, too.  Another way to determine the effectiveness of a company’s distributions is by looking at the Shareholder yield (Mebane Faber).  The Shareholder Yield (Mebane Faber) of Cara Therapeutics, Inc. NasdaqGM:CARA is -0.20971.  This number is calculated by looking at the sum of the dividend yield plus percentage of sales repurchased and net debt repaid yield.

The Value Composite One (VC1) is a method that investors use to determine a company’s value.  The VC1 of Cara Therapeutics, Inc. (NasdaqGM:CARA) is 89.  A company with a value of 0 is thought to be an undervalued company, while a company with a value of 100 is considered an overvalued company.  The VC1 is calculated using the price to book value, price to sales, EBITDA to EV, price to cash flow, and price to earnings.  Similarly, the Value Composite Two (VC2) is calculated with the same ratios, but adds the Shareholder Yield.  The Value Composite Two of Cara Therapeutics, Inc. (NasdaqGM:CARA) is 91.

Investors may be interested in viewing the Gross Margin score on shares of Cara Therapeutics, Inc. (NasdaqGM:CARA). The name currently has a score of 65.00000. This score is derived from the Gross Margin (Marx) stability and growth over the previous eight years. The Gross Margin score lands on a scale from 1 to 100 where a score of 1 would be considered positive, and a score of 100 would be seen as negative.

ERP5 Rank

The ERP5 Rank is an investment tool that analysts use to discover undervalued companies. The ERP5 looks at the Price to Book ratio, Earnings Yield, ROIC and 5 year average ROIC. The ERP5 of Cara Therapeutics, Inc. (NasdaqGM:CARA) is 17064. The lower the ERP5 rank, the more undervalued a company is thought to be.

C-Score – Montier

Cara Therapeutics, Inc. (NasdaqGM:CARA) currently has a Montier C-score of 1.00000. This indicator was developed by James Montier in an attempt to identify firms that were cooking the books in order to appear better on paper. The score ranges from zero to six where a 0 would indicate no evidence of book cooking, and a 6 would indicate a high likelihood. A C-score of -1 would indicate that there is not enough information available to calculate the score. Montier used six inputs in the calculation. These inputs included a growing difference between net income and cash flow from operations, increasing receivable days, growing day’s sales of inventory, increasing other current assets, decrease in depreciation relative to gross property plant and equipment, and high total asset growth.

F Score

At the time of writing, Cara Therapeutics, Inc. (NasdaqGM:CARA) has a Piotroski F-Score of 3. The F-Score may help discover companies with strengthening balance sheets. The score may also be used to spot the weak performers. Joseph Piotroski developed the F-Score which employs nine different variables based on the company financial statement. A single point is assigned to each test that a stock passes. Typically, a stock scoring an 8 or 9 would be seen as strong. On the other end, a stock with a score from 0-2 would be viewed as weak.

Investors may be wondering which way stock market momentum will shift in the second half of the year. If the economic landscape shifts and markets start to go south, investors may need to have an action plan in place. Keeping the bigger picture in mind may help investors when markets are struggling. Short-term developments may cause the investor to lose confidence in certain holdings. Keeping the focus on stock analysis and the overall economic picture may help investors see through the trees. Sometimes the calm, cool, and collected approach will help settle the mind during turbulent market conditions. Being able to stay emotionally unattached to a stock or sector may assist the investor with making tricky buying or selling decisions. Being disciplined is an attribute that many successful investors share. Being prepared for many different scenarios can help ease the burden when those tough portfolio decisions have to be made. 

The MF Rank developed by hedge fund manager Joel Greenblatt, is intended spot high quality companies that are trading at an attractive price. The formula uses ROIC and earnings yield ratios to find quality, undervalued stocks. In general, companies with the lowest combined rank may be the higher quality picks. Inovalon Holdings, Inc. (NasdaqGS:INOV) has a current MF Rank of 11462.

Investors often have to figure out how aggressive they want to be when getting into the stock market. There are individuals who may have had some initial success based on random luck, but diving without preparation can leave investors on the short end of the stick in the long run. Investors may be tempted by the next hot stock that is being talked about around the water cooler. Investors might not realize how risky a certain stock may be, and they may find out that the over performer has already made the run. Doing all the homework may involve tracking technicals, fundamentals, current economic data, and earnings releases. Putting in the time to do the proper research may help the investor see profits down the road.

Free Cash Flow Growth (FCF Growth) is the free cash flow of the current year minus the free cash flow from the previous year, divided by last year’s free cash flow.  The FCF Growth of Inovalon Holdings, Inc. (NasdaqGS:INOV) is -0.432401.  Free cash flow (FCF) is the cash produced by the company minus capital expenditure.  This cash is what a company uses to meet its financial obligations, such as making payments on debt or to pay out dividends.  The Free Cash Flow Score (FCF Score) is a helpful tool in calculating the free cash flow growth with free cash flow stability – this gives investors the overall quality of the free cash flow.  The FCF Score of Inovalon Holdings, Inc. (NasdaqGS:INOV) is 0.322930.  Experts say the higher the value, the better, as it means that the free cash flow is high, or the variability of free cash flow is low or both.

Investors may be interested in viewing the Gross Margin score on shares of Inovalon Holdings, Inc. (NasdaqGS:INOV). The name currently has a score of 50.00000. This score is derived from the Gross Margin (Marx) stability and growth over the previous eight years. The Gross Margin score lands on a scale from 1 to 100 where a score of 1 would be considered positive, and a score of 100 would be seen as negative.

The Return on Invested Capital (aka ROIC) for Inovalon Holdings, Inc. (NasdaqGS:INOV) is 0.002064.  The Return on Invested Capital is a ratio that determines whether a company is profitable or not.  It tells investors how well a company is turning their capital into profits.  The ROIC is calculated by dividing the net operating profit (or EBIT) by the employed capital.  The employed capital is calculated by subrating current liabilities from total assets.  Similarly, the Return on Invested Capital Quality ratio is a tool in evaluating the quality of a company’s ROIC over the course of five years.  The ROIC Quality of Inovalon Holdings, Inc. (NasdaqGS:INOV) is 1.393197.  This is calculated by dividing the five year average ROIC by the Standard Deviation of the 5 year ROIC.  The ROIC 5 year average is calculated using the five year average EBIT, five year average (net working capital and net fixed assets).  The ROIC 5 year average of Inovalon Holdings, Inc. (NasdaqGS:INOV) is 0.480232.

Shareholder Yield

The Shareholder Yield is a way that investors can see how much money shareholders are receiving from a company through a combination of dividends, share repurchases and debt reduction.  The Shareholder Yield of Inovalon Holdings, Inc. (NasdaqGS:INOV) is -0.046992.  This percentage is calculated by adding the dividend yield plus the percentage of shares repurchased.  Dividends are a common way that companies distribute cash to their shareholders.  Similarly, cash repurchases and a reduction of debt can increase the shareholder value, too.  Another way to determine the effectiveness of a company’s distributions is by looking at the Shareholder yield (Mebane Faber).  The Shareholder Yield (Mebane Faber) of Inovalon Holdings, Inc. NasdaqGS:INOV is -0.37780.  This number is calculated by looking at the sum of the dividend yield plus percentage of sales repurchased and net debt repaid yield.

The Value Composite One (VC1) is a method that investors use to determine a company’s value.  The VC1 of Inovalon Holdings, Inc. (NasdaqGS:INOV) is 67.  A company with a value of 0 is thought to be an undervalued company, while a company with a value of 100 is considered an overvalued company.  The VC1 is calculated using the price to book value, price to sales, EBITDA to EV, price to cash flow, and price to earnings.  Similarly, the Value Composite Two (VC2) is calculated with the same ratios, but adds the Shareholder Yield.  The Value Composite Two of Inovalon Holdings, Inc. (NasdaqGS:INOV) is 70.

Key Ratios

Inovalon Holdings, Inc. (NasdaqGS:INOV) presently has a current ratio of 2.07. The current ratio, also known as the working capital ratio, is a liquidity ratio that displays the proportion of current assets of a business relative to the current liabilities. The ratio is simply calculated by dividing current liabilities by current assets. The ratio may be used to provide an idea of the ability of a certain company to pay back its liabilities with assets. Typically, the higher the current ratio the better, as the company may be more capable of paying back its obligations.

Inovalon Holdings, Inc. (NasdaqGS:INOV)’s Leverage Ratio was recently noted as 0.660707. This ratio is calculated by dividing total debt by total assets plus total assets previous year, divided by two. The leverage of a company is relative to the amount of debt on the balance sheet. This ratio is often viewed as one measure of the financial health of a firm.

The Price to book ratio is the current share price of a company divided by the book value per share.  The Price to Book ratio for Inovalon Holdings, Inc. NasdaqGS:INOV is 3.093819.  A lower price to book ratio indicates that the stock might be undervalued.  Similarly, Price to cash flow ratio is another helpful ratio in determining a company’s value.  The Price to Cash Flow for Inovalon Holdings, Inc. (NasdaqGS:INOV) is 27.226220.  This ratio is calculated by dividing the market value of a company by cash from operating activities.  Additionally, the price to earnings ratio is another popular way for analysts and investors to determine a company’s profitability.  The price to earnings ratio for Inovalon Holdings, Inc. (NasdaqGS:INOV) is -185.872255. This ratio is found by taking the current share price and dividing by earnings per share.

Investors may be scouring the exchanges for the next breakout stock. With the next earnings season in focus, investors will be keeping their eyes open for names that have upside potential. Tracking earnings results can help the investor see how healthy the company is. Investors may choose to research companies that produce large earnings beats. Taking the time to fully research the fundamentals can help the investor start piecing together the puzzle. Although many investors may not feel comfortable making trades around earnings, they can prepare for the aftermath and set up a plan to proceed once the market settles.