The stock of Icon PLC (NAS:ICLR, 30-year Financials) appears to be fairly valued, 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 $202.33 per share and the market cap of $10.7 billion, Icon PLC stock appears to be fairly valued. GF Value for Icon PLC is shown in the chart below.
Because Icon PLC is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 17.9% over the past three years and is estimated to grow 10.41% annually over the next three to five years.
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. Icon PLC has a cash-to-debt ratio of 1.94, which is in the middle range of the companies in the industry of Medical Diagnostics & Research. GuruFocus ranks the overall financial strength of Icon PLC at 7 out of 10, which indicates that the financial strength of Icon PLC is fair. This is the debt and cash of Icon PLC 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. Icon PLC has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $2.8 billion and earnings of $6.14 a share. Its operating margin of 14.64% better than 67% of the companies in the industry of Medical Diagnostics & Research. Overall, GuruFocus ranks Icon PLC's profitability as strong. This is the revenue and net income of Icon PLC 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 Icon PLC is 17.9%, which ranks better than 76% of the companies in the industry of Medical Diagnostics & Research. The 3-year average EBITDA growth is 5.6%, which ranks in the middle range 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, Icon PLC's ROIC is 14.59 while its WACC came in at 5.11. The historical ROIC vs WACC comparison of Icon PLC is shown below:
In closing, Icon PLC (NAS:ICLR, 30-year Financials) stock shows every sign of being fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in the industry of Medical Diagnostics & Research. To learn more about Icon PLC stock, you can check out its 30-year Financials here.
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