Is Cara Therapeutics Stock A Buy?

Cara Therapeutics (CARA) researches remedies for pruritus, a skin condition. For those not familiar with the clinical term, the types of FDA approval and advancements sought by Cara Therapeutics involve treatments for irritated and itchy skin.

A wider look at elements of CARA’s operations and objectives show that, as the company points out in its mission statement, pruritus is “not just itchy skin.” The company is actively investigating links between different types of major organ trouble, and the common itch.

Of 30 million people suffering from chronic kidney disease, Cara Therapeutics spokespersons estimate that 50% of them have trouble with pruritus, and this factors into the work that CARA, which interfaces with a network of scientists and medical professionals, does to advance treatments.

The company also considers those with liver disease or a condition called atopic dermatitis, examining relationships between itchy skin and underlying conditions. Spokespersons point out that pruritus can be a “debilitating” symptom of liver conditions and other diseases.

Is Cara Therapeutics Stock A Buy?

CARA last reported positive earnings in the fourth quarter of 2020, with last quarter’s earnings-per-share significantly negative. Shareholders have seen precipitous price drops over the same time frame.

Of the analysts covering Cara, 4 rate the stock a Buy and 1 rates it a hold with no Sell ratings assigned by Wall Street.

From a cash flow perspective, the picture looks rosy. The upside potential is north of 100% if analyst expectations are met.

Cara Therapeutics Revenues and Earnings Forecasts

Cara Therapeutics is expected to report negative EPS all through 2021.

As for top line sales, a host of analysts predict around $2.3 million for the current quarter, and $12.6 million by the end of September, after total revenues of $135 million in 2020.

These expectations are so far below previous CARA revenue figures that other analysts argue projected revenues should be much higher.

Competition Threatens CARA Share Price

The biggest risk of investing in CARA is stifling competition from some gigantic market makers.

In the field of pruritus research and treatment, some pretty big names are involved, including Abbott, Johnson & Johnson (JNJ), Novartis and Bayer.

These firms are less specialized in CARA’s particular mission, but are household names with enormous relative revenues and wide distribution networks.

Contrast J&J’s market cap of $434 billion with CARA’s $699 million, and you’ll see the order of magnitude that Cara Therapeutics is contending with.

Or consider that Bayer (BAYZF), with a market cap of $63 billion, (making it the world’s 278th most valuable company, according to those who keep track of these things), has diverse holdings that are commonly considered regular household items.

Then there’s Abbott, with $193 billion, which is nothing to sneeze at, and its own line of familiar products. Against that, CARA seems a little like a small fish in an ocean of whales.

It’s reasonable to think that one or more of these giants might knock CARA to the sidelines of irrelevance, but until we actually see the numbers, the jury’s still out on that.

Is Cara Therapeutics Valuation Fair?

Looking at a fair market price for Cara Therapeutics (or some other equity) involves considering various factors such as sales, costs, and cash flows. By projecting those cash flows out in time and discounting to the present day, we arrive at a fair market value of $28.75 per share.

That represents significant upside potential for CARA shares, and offers investors an attractive reward to risk ratio if management executes well against Wall Street analysts’s forecasts.

Less optimistic analysts believe that CARA is mildly undervalued. If you think that the company will come out on top in pruritus research, becoming a kind of bespoke option in a gigantic market, you might find evidence for or theorize a value higher than that. That’s certainly what the majority of analysts are banking on. 

Is Cara Therapeutics Stock A Buy? The Bottom Line

The bottom line for Cara Therapeutics is that this is a highly specialized equity with room for growth, but as mentioned, is dependent on several factors coming together well in order to spike its value and for CARA to provide a long-term value stock for investors.

That’s something to think about when considering Cara Therapeutics as a long term play. There are many equities to choose from, and going into CARA suggests you see unique potential in this pharma offering. Short-term, the indications are that CARA is less likely than some others to return explosive gains. However, it may be a good part of a long term diversified portfolio, especially if you are focused in healthcare.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.