iRhythm Technologies Stock Shows Every Sign Of Being Fairly Valued

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GF Value
Apr 11, 2021
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The stock of iRhythm Technologies (NAS:IRTC, 30-year Financials) is estimated 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 $132.76 per share and the market cap of $3.9 billion, iRhythm Technologies stock shows every sign of being fairly valued. GF Value for iRhythm Technologies is shown in the chart below.

iRhythm Technologies GF Value Chart

Because iRhythm Technologies is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 29.7% over the past three years and is estimated to grow 25.25% annually over the next three to five years.

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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. iRhythm Technologies has a cash-to-debt ratio of 2.74, which is in the middle range of the companies in the industry of Medical Devices & Instruments. The overall financial strength of iRhythm Technologies is 6 out of 10, which indicates that the financial strength of iRhythm Technologies is fair. This is the debt and cash of iRhythm Technologies over the past years:

debt and cash

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. iRhythm Technologies has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $265.2 million and loss of $1.59 a share. Its operating margin is -16.47%, which ranks in the middle range of the companies in the industry of Medical Devices & Instruments. Overall, the profitability of iRhythm Technologies is ranked 3 out of 10, which indicates poor profitability. This is the revenue and net income of iRhythm Technologies over the past years:

Revnue and Net Income

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 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. The 3-year average annual revenue growth rate of iRhythm Technologies is 29.7%, which ranks better than 88% of the companies in the industry of Medical Devices & Instruments. The 3-year average EBITDA growth rate is -5%, which ranks worse than 73% 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, iRhythm Technologies's return on invested capital is -29.46, and its cost of capital is 11.68. The historical ROIC vs WACC comparison of iRhythm Technologies is shown below:

ROIC vs WACC

In conclusion, The stock of iRhythm Technologies (NAS:IRTC, 30-year Financials) gives every indication of being fairly valued. The company's financial condition is fair and its profitability is poor. Its growth ranks worse than 73% of the companies in the industry of Medical Devices & Instruments. To learn more about iRhythm Technologies stock, you can check out its 30-year Financials here.

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