The stock of Natera (NAS:NTRA, 30-year Financials) shows every sign 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 $101.83 per share and the market cap of $8.9 billion, Natera stock shows every sign of being significantly overvalued. GF Value for Natera is shown in the chart below.
Because Natera is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 7.3% over the past three years and is estimated to grow 21.13% 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. Natera has a cash-to-debt ratio of 2.62, which is in the middle range of the companies in the industry of Medical Diagnostics & Research. GuruFocus ranks the overall financial strength of Natera at 5 out of 10, which indicates that the financial strength of Natera is fair. This is the debt and cash of Natera over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Natera has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $391 million and loss of $2.83 a share. Its operating margin is -55.31%, which ranks worse than 70% of the companies in the industry of Medical Diagnostics & Research. Overall, the profitability of Natera is ranked 2 out of 10, which indicates poor profitability. This is the revenue and net income of Natera 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. Natera's 3-year average revenue growth rate is in the middle range of the companies in the industry of Medical Diagnostics & Research. Natera's 3-year average EBITDA growth rate is -2.7%, which ranks worse than 74% of the companies in the industry of Medical Diagnostics & Research.
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, Natera's ROIC is -106.00 while its WACC came in at 8.52. The historical ROIC vs WACC comparison of Natera is shown below:
In conclusion, The stock of Natera (NAS:NTRA, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks worse than 74% of the companies in the industry of Medical Diagnostics & Research. To learn more about Natera stock, you can check out its 30-year Financials here.
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