Last update on 2024-06-07

Neogen (NEOG) - Piotroski F-Score Analysis for Year 2023 (Final Score: 3/9)

Neogen (NEOG) achieved a Piotroski F-Score of 3/9 for 2023, reflectng financial weaknesses in several areas as analyzed against the Piotroski criteria.

Short Analysis - Piotroski Score: 3

We're running Neogen (NEOG) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score helps investors determine the financial health of a company on a 0 to 9 scale. Neogen (NEOG) has a Piotroski Score of 3 out of 9 based on their recent financials from 2023. Highlights include a negative net income of -$22.87 million, positive cash flow from operations at $41.03 million, and a significant decline in Return on Assets (ROA) to -0.0082. They also saw an increase in leverage ratio, a decrease in the current ratio, and a significant increase in outstanding shares. Lastly, while gross margin saw a slight increase, asset turnover declined.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski F-Score of 3, Neogen (NEOG) may not be an attractive investment at this time. The company showed worrying signs with negative net income, decreasing liquidity, and increased leverage. However, positive cash flow and improving gross margin are slight positives. Potential investors might want to dig deeper into understanding the reasons behind these mixed signals and trend deviations before considering investing in Neogen's stock.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Neogen (NEOG)

Company has a positive net income?

Net income measures a company's total profit or loss. It is the bottom line of the income statement.

In 2023, Neogen (NEOG) reported a net income of -$22,870,000, indicating a negative income. Comparing this with historical data, Neogen has consistently reported positive net income from 2003 to 2022, reaching its peak at $63,145,000 in 2018. The sharp downturn to a negative value in 2023 could be alarming for investors and stakeholders. This negative net income might result from increased expenses, reduced revenues, or other financial challenges. Therefore, for the Piotroski Analysis, Neogen earns 0 points in this criterion.

Company has a positive cash flow?

Positive cash flow from operations is a strong indicator of a company's financial health in the Piotroski Analysis, suggesting good profitability and internal cash generation.

For the year 2023, Neogen's Cash Flow from Operations (CFO) stands at $41,028,000. Notably, this metric is positive, which aligns with the Piotroski criteria, thus earning the company 1 point. This is a positive trend, albeit a significant decrease from the previous year's CFO of $68,038,000. Historically, Neogen has consistently maintained a positive CFO over the past two decades, marking only moderate fluctuations year over year. Such consistency in operational cash generation highlights the company's robust financial health, even though the recent dip in CFO should be closely monitored to understand potential underlying issues.

Return on Assets (ROA) are growing?

Assessing the change in Return on Assets (ROA) shows a company's ability to use its assets to generate profits over time. It is crucial for evaluating management efficiency.

For Neogen (NEOG), the ROA has decreased from 0.0505 in 2022 to -0.0082 in 2023. In this case, the point is set to 0 as the ROA did not increase. It is quite alarming as the 2023 ROA represents a deterioration compared to 2022. An ROA in the negative territory, such as -0.0082, signifies that the company is registering losses via the assets. This is a bad trend, especially when considering the 20-year historical data where Neogen historically had positive ROA values, significantly peaking at 0.0505. The industry median ROA for 2023 stands at 0.504, highlighting that Neogen is underperforming its industry peers.

Operating Cashflow are higher than Netincome?

Operating cash flow (OCF) being higher than net income suggests strong internal cash generation, an indicator of good financial health.

For FY 2023, Neogen's operating cash flow is $41.03 million, while the net income stands at a negative $22.87 million. This indicates that despite posting outright losses, Neogen remains cash flow positive with a significant variance of $63.91 million ($41.03 million - (-$22.87 million)), highlighting the firm's ability to generate substantial cash flow from its core operations. A deeper dive into the historical data reveals an alarming descent: from $68.04 million in 2022 to $41.03 million in 2023. Despite this, maintaining a positive operating cash flow amidst negative net income skews positively in the Piotroski scoring system, contributing 1 point. However, persistent negative net income levels do underscore underlying challenges in operational profitability.

Liquidity of Neogen (NEOG)

Leverage is declining?

Leverage measures a company's debt levels in relation to its equity and is crucial for assessing financial risk.

In 2022, Neogen's leverage ratio was 0, and by 2023, it increased to 0.1944. This is a significant rise, indicating that the company has taken on more debt relative to its equity over the past year. Historically, from 2003 to 2022, Neogen maintained very low leverage, often at 0 or close to it. The sudden spike in leverage in 2023 marks a deviation from its historical trend. This increase in financial leverage suggests that Neogen is possibly financing growth or operations through debt, which introduces higher financial risk. Therefore, for the purpose of Piotroski's criteria, where a decrease in leverage is favorable, Neogen would score 0 points in this category due to the increase.

Current Ratio is growing?

The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations. A higher ratio indicates better liquidity.

Neogen (NEOG) saw its current ratio decrease from 8.052 in 2022 to 4.0278 in 2023, leading to 0 points for this criterion. This downward trend suggests a significant drop in liquidity. While the industry's median ratio decreased marginally to 2.3682, Neogen's sharp decrease may warrant further scrutiny. Historical data indicates fluctuating performance, underlining the importance of investigating any underlying issues that might have contributed to such a drastic fall in current liquidity.

Number of shares not diluted?

Examining the change in shares outstanding in fundamental analysis is crucial as it impacts key financial metrics.

Neogen (NEOG) saw a significant increase in its outstanding shares from 107,801,094 in 2022 to 216,245,501 in 2023. This represents a trend where the number of outstanding shares nearly doubled year-over-year. For the Piotroski F-Score, since the outstanding shares increased, we do not add a point for this criterion (0 points). This increase can dilute the value of existing shares and might suggest that the company has issued additional shares perhaps for financing activities. Historically, from 2003 to 2023, the total number of outstanding shares steadily increased from 71,804,982 to 216,245,501, indicating consistent equity financing. Investors should consider this when evaluating stock performance as share dilution can affect earnings-per-share (EPS) calculations.

Operating of Neogen (NEOG)

Cross Margin is growing?

In the Piotroski Analysis, the change in gross margin is a measure of operational efficiency and competitive position. An increase suggests improved cost management or pricing power.

Comparing 2023's Gross Margin of 0.4936 to 2022's Gross Margin of 0.461, we see an uptick, marking a positive trend. Over the past 20 years, Neogen's gross margin has illustrated fluctuations but has generally trended towards stability around the 0.45 to 0.50 range. The 2023 figure remains competitive compared to the industry median of 0.504, then it's lower by around 2 percentage points. The steady incremental increase suggests improving operational efficiencies. For this criterion, Neogen scores 1 point.

Asset Turnover Ratio is growing?

Asset Turnover measures the efficiency of a company's use of its assets in generating sales revenue. A higher Asset Turnover is generally positive.

In 2023, the Asset Turnover for Neogen (NEOG) was 0.2965 compared to 0.5511 in 2022. This represents a decrease, indicating that Neogen has been less efficient in using its assets to generate sales in 2023. The historical data also shows a downward trend in asset turnover over the past two decades, which could suggest a long-term decline in operational efficiency. Due to the decrease in Asset Turnover in 2023, 0 points are added for this criterion.