The stock of Edap TMS SA (NAS:EDAP, 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 $9.05 per share and the market cap of $264.3 million, Edap TMS SA stock shows every sign of being significantly overvalued. GF Value for Edap TMS SA is shown in the chart below.
Because Edap TMS SA is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 10.9% over the past three years and is estimated to grow 18.06% annually over the next three to five years.
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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. Edap TMS SA has a cash-to-debt ratio of 4.55, which is in the middle range of the companies in the industry of Medical Devices & Instruments. GuruFocus ranks the overall financial strength of Edap TMS SA at 7 out of 10, which indicates that the financial strength of Edap TMS SA is fair. This is the debt and cash of Edap TMS SA 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. Edap TMS SA has been profitable 2 over the past 10 years. Over the past twelve months, the company had a revenue of $80.6 million and loss of $0.164 a share. Its operating margin is -1.60%, which ranks in the middle range of the companies in the industry of Medical Devices & Instruments. Overall, GuruFocus ranks the profitability of Edap TMS SA at 3 out of 10, which indicates poor profitability. This is the revenue and net income of Edap TMS SA 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 Edap TMS SA is 10.9%, which ranks better than 66% of the companies in the industry of Medical Devices & Instruments. The 3-year average EBITDA growth is -37.8%, which ranks in the bottom 10% of the companies in the industry of Medical Devices & Instruments.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Edap TMS SA's ROIC was -20.27, while its WACC came in at 11.41. The historical ROIC vs WACC comparison of Edap TMS SA is shown below:
In short, The stock of Edap TMS SA (NAS:EDAP, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks in the bottom 10% of the companies in the industry of Medical Devices & Instruments. To learn more about Edap TMS SA stock, you can check out its 30-year Financials here.
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