Certara (CERT): The Red Flags Abound
Growth through acquisitions, shifting KPIs, material weaknesses, and an auditor change
Certara (CERT) develops software that enables drug companies to model and evaluate the effectiveness of new drugs, as well as identify potential issues. In addition, CERT assists clients in modeling and presenting their results and methodologies to the FDA and other medical regulators.
The company's stock has suffered in recent years, falling more than 50% since mid-2023. Even after this decline, shares still trade at 23 times forward non-GAAP EPS. Despite the sell-off, we hesitate to call the stock cheap. Much of CERT's historical growth has been fueled by 21 acquisitions over the past few years, and the company's reported results benefit substantially from acquisition accounting, which excludes the costs of these deals. We also see several other factors that, in our view, undermine the quality of reported earnings. Additionally, it is concerning that the company repeatedly changes the key metrics it emphasizes to investors. Finally, its recent accounting history includes material weaknesses and an auditor change.
Let’s take a look behind the numbers…