Neogen Corp (NEOG, Financial) recently experienced a daily loss of 1.95% and a 3-month loss of 20.38%, with a Loss Per Share of 0.07. These figures raise a critical question: is the stock significantly undervalued? To provide an answer, we delve into an in-depth valuation analysis of Neogen. Read on to gain valuable insights into the company's financial status.
Company Introduction
Headquartered in Lansing, Michigan, Neogen Corporation develops, manufactures, and markets a variety of products for food and animal safety. The company performs diagnostics to detect unintended substances in food and animal feed, such as pathogens, allergens, and drug residues, for food and feed processing companies. It also sells veterinary instruments, pharmaceuticals, disinfectants, and genomics tests for animals, including cattle, horses, and canines. Sales in the United States account for 60% of total revenue, while international markets, including Canada, Europe, Asia, and Latin America, account for the remaining 40%.
Comparing the stock price with the GF Value, an estimation of fair value, provides a snapshot of the company's value. Neogen's current stock price is $16.63, while its GF Value stands at $37.34, indicating that the stock may be significantly undervalued.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's ideal fair trading value.
Neogen (NEOG, Financial) appears to be significantly undervalued based on the GF Value. The stock's fair value is estimated considering historical multiples, an internal adjustment based on past business growth, and future business performance forecasts. If the stock's share price is significantly above the GF Value Line, the stock is likely overvalued, and future returns may be poor. Conversely, if the stock's share price is significantly below the GF Value Line, the stock is likely undervalued, and future returns may be high. Currently, Neogen's market cap stands at $3.60 billion, suggesting it is significantly undervalued.
Considering Neogen's undervaluation, the long-term return of its stock is likely to be much higher than its business growth.
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Assessing Financial Strength
It's crucial to evaluate the financial strength of a company before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage offer a clear picture of a company's financial strength. Neogen's cash-to-debt ratio is 0.28, ranking lower than 75.77% of 227 companies in the Medical Diagnostics & Research industry. With an overall financial strength score of 5 out of 10, Neogen's financial condition is fair.
Profitability and Growth
Investing in profitable companies, especially those with consistent long-term profitability, is generally less risky. A company with high profit margins is also typically a safer investment than one with low profit margins. Neogen has been profitable for 9 out of the past 10 years. Over the past twelve months, the company had a revenue of $822.50 million and a Loss Per Share of $0.07. Its operating margin is 4.56%, ranking better than 58.33% of 228 companies in the Medical Diagnostics & Research industry. Overall, GuruFocus ranks Neogen's profitability at 7 out of 10, indicating fair profitability.
Growth is a crucial factor in a company's valuation. 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. Neogen's 3-year average annual revenue growth rate is 3.3%, ranking lower than 67% of 203 companies in the Medical Diagnostics & Research industry. The 3-year average EBITDA growth rate is -7.3%, which ranks lower than 74.73% of 186 companies in the same industry.
ROIC vs 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. Ideally, the return on invested capital should be higher than the weighted cost of capital. For the past 12 months, Neogen's return on invested capital is 1.42, and its cost of capital is 13.8.
Conclusion
In summary, the stock of Neogen (NEOG, Financial) appears to be significantly undervalued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks lower than 74.73% of 186 companies in the Medical Diagnostics & Research industry. To learn more about Neogen stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
