The stock of LeMaitre Vascular (NAS:LMAT, 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 $50.47 per share and the market cap of $1 billion, LeMaitre Vascular stock appears to be significantly overvalued. GF Value for LeMaitre Vascular is shown in the chart below.
Because LeMaitre Vascular is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 7.9% over the past three years and is estimated to grow 10.23% annually over the next three to five years.
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. LeMaitre Vascular has a cash-to-debt ratio of 0.49, which which ranks worse than 78% of the companies in the industry of Medical Devices & Instruments. The overall financial strength of LeMaitre Vascular is 7 out of 10, which indicates that the financial strength of LeMaitre Vascular is fair. This is the debt and cash of LeMaitre Vascular 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. LeMaitre Vascular has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $129.4 million and earnings of $1.04 a share. Its operating margin is 21.89%, which ranks better than 85% of the companies in the industry of Medical Devices & Instruments. Overall, the profitability of LeMaitre Vascular is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of LeMaitre Vascular over the past years:
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. LeMaitre Vascular's 3-year average revenue growth rate is in the middle range of the companies in the industry of Medical Devices & Instruments. LeMaitre Vascular's 3-year average EBITDA growth rate is 12.9%, which ranks in the middle range 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, LeMaitre Vascular's return on invested capital is 11.57, and its cost of capital is 10.05. The historical ROIC vs WACC comparison of LeMaitre Vascular is shown below:
In short, the stock of LeMaitre Vascular (NAS:LMAT, 30-year Financials) shows every sign of being significantly overvalued. 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 Devices & Instruments. To learn more about LeMaitre Vascular stock, you can check out its 30-year Financials here.
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