The stock of SeaSpine Holdings (NAS:SPNE, 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 $21.69 per share and the market cap of $719.3 million, SeaSpine Holdings stock gives every indication of being significantly overvalued. GF Value for SeaSpine Holdings is shown in the chart below.
Because SeaSpine Holdings is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which is estimated to grow 11.86% annually over the next three to five years.
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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. SeaSpine Holdings has a cash-to-debt ratio of 2.53, which which ranks in the middle range of the companies in the industry of Medical Devices & Instruments. The overall financial strength of SeaSpine Holdings is 6 out of 10, which indicates that the financial strength of SeaSpine Holdings is fair. This is the debt and cash of SeaSpine Holdings 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. SeaSpine Holdings has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $160.2 million and loss of $1.57 a share. Its operating margin is -26.98%, which ranks worse than 66% of the companies in the industry of Medical Devices & Instruments. Overall, GuruFocus ranks the profitability of SeaSpine Holdings at 1 out of 10, which indicates poor profitability. This is the revenue and net income of SeaSpine Holdings 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 SeaSpine Holdings is -18.8%, which ranks worse than 82% of the companies in the industry of Medical Devices & Instruments. The 3-year average EBITDA growth rate is 13.1%, which ranks in the middle range of the companies in the industry of Medical Devices & Instruments.
Another way to evaluate a company’s profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, SeaSpine Holdings’s ROIC was -39.88, while its WACC came in at 9.44. The historical ROIC vs WACC comparison of SeaSpine Holdings is shown below:
In summary, The stock of SeaSpine Holdings (NAS:SPNE, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks in the middle range of the companies in the industry of Medical Devices & Instruments. To learn more about SeaSpine Holdings stock, you can check out its 30-year Financials here.
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