The stock of Bio-Rad Laboratories (NYSE:BIO, 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 $640.73 per share and the market cap of $18.9 billion, Bio-Rad Laboratories stock is believed to be significantly overvalued. GF Value for Bio-Rad Laboratories is shown in the chart below.
Because Bio-Rad Laboratories is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 5.5% over the past three years and is estimated to grow 5.09% annually over the next three to five years.
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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. Bio-Rad Laboratories has a cash-to-debt ratio of 4.39, which ranks in the middle range of the companies in the industry of Medical Devices & Instruments. Based on this, GuruFocus ranks Bio-Rad Laboratories's financial strength as 8 out of 10, suggesting strong balance sheet. This is the debt and cash of Bio-Rad Laboratories over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Bio-Rad Laboratories has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $2.5 billion and earnings of $126.32 a share. Its operating margin of 16.14% better than 76% of the companies in the industry of Medical Devices & Instruments. Overall, GuruFocus ranks Bio-Rad Laboratories's profitability as fair. This is the revenue and net income of Bio-Rad Laboratories 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 Bio-Rad Laboratories is 5.5%, which ranks in the middle range of the companies in the industry of Medical Devices & Instruments. The 3-year average EBITDA growth rate is 165.5%, which ranks better than 99% 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, Bio-Rad Laboratories's ROIC was 3.56, while its WACC came in at 6.14. The historical ROIC vs WACC comparison of Bio-Rad Laboratories is shown below:
In summary, the stock of Bio-Rad Laboratories (NYSE:BIO, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is strong and its profitability is fair. Its growth ranks better than 99% of the companies in the industry of Medical Devices & Instruments. To learn more about Bio-Rad Laboratories stock, you can check out its 30-year Financials here.
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