The stock of Sanara MedTech (NAS:SMTI, 30-year Financials) gives every indication of being significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $33.18 per share and the market cap of $251.8 million, Sanara MedTech stock is believed to be significantly overvalued. GF Value for Sanara MedTech is shown in the chart below.
Because Sanara MedTech is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 2.8% over the past five years.
Link: These companies may deliever higher future returns at reduced risk.
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Sanara MedTech has a cash-to-debt ratio of 1.94, which which ranks in the middle range of the companies in the industry of Healthcare Providers & Services. The overall financial strength of Sanara MedTech is 7 out of 10, which indicates that the financial strength of Sanara MedTech is fair. This is the debt and cash of Sanara MedTech over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Sanara MedTech has been profitable 1 years over the past 10 years. During the past 12 months, the company had revenues of $14.2 million and loss of $1.16 a share. Its operating margin of -39.34% worse than 83% of the companies in the industry of Healthcare Providers & Services. Overall, GuruFocus ranks Sanara MedTech's profitability as poor. This is the revenue and net income of Sanara MedTech over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Sanara MedTech's 3-year average revenue growth rate is in the middle range of the companies in the industry of Healthcare Providers & Services. Sanara MedTech's 3-year average EBITDA growth rate is -94.6%, which ranks in the bottom 10% of the companies in the industry of Healthcare Providers & Services.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Sanara MedTech's return on invested capital is -151.30, and its cost of capital is 17.85. The historical ROIC vs WACC comparison of Sanara MedTech is shown below:
To conclude, Sanara MedTech (NAS:SMTI, 30-year Financials) stock is believed to be significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks in the bottom 10% of the companies in the industry of Healthcare Providers & Services. To learn more about Sanara MedTech stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
