The stock of Pacific Health Care Organization (OTCPK:PFHO, 30-year Financials) is believed to be modestly 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 $1.16 per share and the market cap of $14.8 million, Pacific Health Care Organization stock shows every sign of being modestly overvalued. GF Value for Pacific Health Care Organization is shown in the chart below.
Because Pacific Health Care Organization is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Pacific Health Care Organization has a cash-to-debt ratio of 12.34, which ranks better than 77% of the companies in Healthcare Plans industry. Based on this, GuruFocus ranks Pacific Health Care Organization's financial strength as 7 out of 10, suggesting fair balance sheet. This is the debt and cash of Pacific Health Care Organization over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Pacific Health Care Organization has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $6 million and earnings of $0.04 a share. Its operating margin is 13.55%, which ranks better than 69% of the companies in Healthcare Plans industry. Overall, GuruFocus ranks the profitability of Pacific Health Care Organization at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Pacific Health Care Organization over the past years:
Growth is probably the most important factor 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. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Pacific Health Care Organization is -2.4%, which ranks worse than 83% of the companies in Healthcare Plans industry. The 3-year average EBITDA growth rate is -21%, which ranks in the bottom 10% of the companies in Healthcare Plans industry.
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, Pacific Health Care Organization's return on invested capital is 37.68, and its cost of capital is 3.01. The historical ROIC vs WACC comparison of Pacific Health Care Organization is shown below:
In closing, the stock of Pacific Health Care Organization (OTCPK:PFHO, 30-year Financials) gives every indication of being modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the bottom 10% of the companies in Healthcare Plans industry. To learn more about Pacific Health Care Organization stock, you can check out its 30-year Financials here.
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