The stock of Fisher & Paykel Healthcare (ASX:FPH, 30-year Financials) is estimated to be 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 AUD 32.8 per share and the market cap of AUD 19 billion, Fisher & Paykel Healthcare stock is believed to be significantly overvalued. GF Value for Fisher & Paykel Healthcare is shown in the chart below.
Because Fisher & Paykel Healthcare is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 13.2% over the past three years and is estimated to grow 2.28% annually over the next three to five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Fisher & Paykel Healthcare has a cash-to-debt ratio of 1.44, which is in the middle range of the companies in the industry of Medical Devices & Instruments. GuruFocus ranks the overall financial strength of Fisher & Paykel Healthcare at 8 out of 10, which indicates that the financial strength of Fisher & Paykel Healthcare is strong. This is the debt and cash of Fisher & Paykel Healthcare over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Fisher & Paykel Healthcare has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of AUD 1.5 billion and earnings of AUD 0.638 a share. Its operating margin is 32.88%, which ranks better than 92% of the companies in the industry of Medical Devices & Instruments. Overall, the profitability of Fisher & Paykel Healthcare is ranked 9 out of 10, which indicates strong profitability. This is the revenue and net income of Fisher & Paykel Healthcare over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Fisher & Paykel Healthcare is 13.2%, which ranks better than 71% of the companies in the industry of Medical Devices & Instruments. The 3-year average EBITDA growth is 15.2%, which ranks in the middle range of the companies in the industry of Medical Devices & Instruments.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). 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. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Fisher & Paykel Healthcare's ROIC is 34.55 while its WACC came in at 3.73. The historical ROIC vs WACC comparison of Fisher & Paykel Healthcare is shown below:
In conclusion, the stock of Fisher & Paykel Healthcare (ASX:FPH, 30-year Financials) is estimated to be significantly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks in the middle range of the companies in the industry of Medical Devices & Instruments. To learn more about Fisher & Paykel Healthcare stock, you can check out its 30-year Financials here.
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