The stock of Pro-Dex (NAS:PDEX, 30-year Financials) shows every sign of being modestly 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 $26.03 per share and the market cap of $100.5 million, Pro-Dex stock is believed to be modestly overvalued. GF Value for Pro-Dex is shown in the chart below.
Because Pro-Dex is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 16.7% over the past three years and is estimated to grow 13.76% annually over the next three to five years.
Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Pro-Dex has a cash-to-debt ratio of 0.73, which ranks worse than 71% of the companies in the industry of Medical Devices & Instruments. Based on this, GuruFocus ranks Pro-Dex's financial strength as 7 out of 10, suggesting fair balance sheet. This is the debt and cash of Pro-Dex over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Pro-Dex has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $36.5 million and earnings of $1.35 a share. Its operating margin is 16.36%, which ranks better than 78% of the companies in the industry of Medical Devices & Instruments. Overall, the profitability of Pro-Dex is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Pro-Dex 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 Pro-Dex is 16.7%, which ranks better than 77% of the companies in the industry of Medical Devices & Instruments. The 3-year average EBITDA growth rate is 37.9%, which ranks better than 79% 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, Pro-Dex's ROIC is 24.06 while its WACC came in at 9.56. The historical ROIC vs WACC comparison of Pro-Dex is shown below:
In summary, the stock of Pro-Dex (NAS:PDEX, 30-year Financials) appears to be modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 79% of the companies in the industry of Medical Devices & Instruments. To learn more about Pro-Dex stock, you can check out its 30-year Financials here.
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