The stock of Quidel (NAS:QDEL, 30-year Financials) is estimated to be possible value trap, 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 $126.3 per share and the market cap of $5.3 billion, Quidel stock gives every indication of being possible value trap. GF Value for Quidel is shown in the chart below.
The reason we think that Quidel stock might be a value trap is because
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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. Quidel has a cash-to-debt ratio of 4.52, which is better than 66% of the companies in the industry of Medical Diagnostics & Research. GuruFocus ranks the overall financial strength of Quidel at 8 out of 10, which indicates that the financial strength of Quidel is strong. This is the debt and cash of Quidel 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. Quidel has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $1.7 billion and earnings of $18.59 a share. Its operating margin is 64.03%, which ranks better than 99% of the companies in the industry of Medical Diagnostics & Research. Overall, the profitability of Quidel is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Quidel 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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Quidel is 66.7%, which ranks better than 96% of the companies in the industry of Medical Diagnostics & Research. The 3-year average EBITDA growth rate is 176.3%, which ranks better than 99% 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, Quidel's ROIC is 89.80 while its WACC came in at 1.61. The historical ROIC vs WACC comparison of Quidel is shown below:
Overall, Quidel (NAS:QDEL, 30-year Financials) stock is estimated to be possible value trap. The company's financial condition is strong and its profitability is fair. Its growth ranks better than 99% of the companies in the industry of Medical Diagnostics & Research. To learn more about Quidel stock, you can check out its 30-year Financials here.
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