The stock of Tandem Diabetes Care (NAS:TNDM, 30-year Financials) shows every sign of being modestly undervalued, 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 $92.06 per share and the market cap of $5.8 billion, Tandem Diabetes Care stock appears to be modestly undervalued. GF Value for Tandem Diabetes Care is shown in the chart below.
Because Tandem Diabetes Care is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which is estimated to grow 18.45% annually over the next three to five years.
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. Tandem Diabetes Care has a cash-to-debt ratio of 2.12, which is in the middle range of the companies in the industry of Medical Devices & Instruments. The overall financial strength of Tandem Diabetes Care is 5 out of 10, which indicates that the financial strength of Tandem Diabetes Care is fair. This is the debt and cash of Tandem Diabetes Care 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. Tandem Diabetes Care has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $498.8 million and loss of $0.63 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, the profitability of Tandem Diabetes Care is ranked 1 out of 10, which indicates poor profitability. This is the revenue and net income of Tandem Diabetes Care 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 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 Tandem Diabetes Care is -24.4%, which ranks worse than 86% of the companies in the industry of Medical Devices & Instruments. The 3-year average EBITDA growth rate is 71.5%, which ranks better than 94% of the companies in the industry of Medical Devices & Instruments.
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, Tandem Diabetes Care's ROIC is -4.49 while its WACC came in at 5.58. The historical ROIC vs WACC comparison of Tandem Diabetes Care is shown below:
In conclusion, the stock of Tandem Diabetes Care (NAS:TNDM, 30-year Financials) gives every indication of being modestly undervalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 94% of the companies in the industry of Medical Devices & Instruments. To learn more about Tandem Diabetes Care stock, you can check out its 30-year Financials here.
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