The stock of InfuSystems Holdings (AMEX:INFU, 30-year Financials) appears 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 $19.99 per share and the market cap of $409.2 million, InfuSystems Holdings stock gives every indication of being significantly overvalued. GF Value for InfuSystems Holdings is shown in the chart below.
Because InfuSystems Holdings is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 12.8% over the past five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. InfuSystems Holdings has a cash-to-debt ratio of 0.08, which is in the bottom 10% of the companies in the industry of Medical Devices & Instruments. The overall financial strength of InfuSystems Holdings is 5 out of 10, which indicates that the financial strength of InfuSystems Holdings is fair. This is the debt and cash of InfuSystems Holdings 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. InfuSystems Holdings has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $100.3 million and earnings of $0.85 a share. Its operating margin of 9.64% in the middle range of the companies in the industry of Medical Devices & Instruments. Overall, GuruFocus ranks InfuSystems Holdings’s profitability as fair. This is the revenue and net income of InfuSystems 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 InfuSystems Holdings is 12.8%, which ranks better than 70% of the companies in the industry of Medical Devices & Instruments. The 3-year average EBITDA growth rate is 40.6%, which ranks better than 78% of the companies in the industry of Medical Devices & Instruments.
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, InfuSystems Holdings’s return on invested capital is 27.46, and its cost of capital is 7.72. The historical ROIC vs WACC comparison of InfuSystems Holdings is shown below:
In short, the stock of InfuSystems Holdings (AMEX:INFU, 30-year Financials) is estimated to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 78% of the companies in the industry of Medical Devices & Instruments. To learn more about InfuSystems Holdings stock, you can check out its 30-year Financials here.
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