The stock of Asensus Surgical (AMEX:ASXC, 30-year Financials) gives every indication 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 $3.5 per share and the market cap of $814.1 million, Asensus Surgical stock shows every sign of being significantly overvalued. GF Value for Asensus Surgical is shown in the chart below.
Because Asensus Surgical is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Link: These companies may deliever higher future returns at reduced risk.
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. Asensus Surgical has a cash-to-debt ratio of 4.67, which which ranks in the middle range of the companies in the industry of Medical Devices & Instruments. The overall financial strength of Asensus Surgical is 5 out of 10, which indicates that the financial strength of Asensus Surgical is fair. This is the debt and cash of Asensus Surgical 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. Asensus Surgical has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $3.2 million and loss of $1.14 a share. Its operating margin is -1782.53%, which ranks in the bottom 10% of the companies in the industry of Medical Devices & Instruments. Overall, GuruFocus ranks the profitability of Asensus Surgical at 1 out of 10, which indicates poor profitability. This is the revenue and net income of Asensus Surgical over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Asensus Surgical is -58.3%, which ranks in the bottom 10% of the companies in the industry of Medical Devices & Instruments. The 3-year average EBITDA growth is 61.7%, which ranks better than 92% 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, Asensus Surgical's return on invested capital is -100.36, and its cost of capital is 13.34.
In closing, The stock of Asensus Surgical (AMEX:ASXC, 30-year Financials) appears to be significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 92% of the companies in the industry of Medical Devices & Instruments. To learn more about Asensus Surgical stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
