The stock of Agilent Technologies (NYSE:A, 30-year Financials) is estimated 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 $131.42 per share and the market cap of $40 billion, Agilent Technologies stock is estimated to be significantly overvalued. GF Value for Agilent Technologies is shown in the chart below.
Because Agilent Technologies is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 7.6% over the past three years and is estimated to grow 6.67% 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. Agilent Technologies has a cash-to-debt ratio of 0.53, which ranks worse than 73% of the companies in the industry of Medical Diagnostics & Research. Based on this, GuruFocus ranks Agilent Technologies's financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of Agilent Technologies 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. Agilent Technologies has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $5.5 billion and earnings of $2.6 a share. Its operating margin of 17.34% better than 74% of the companies in the industry of Medical Diagnostics & Research. Overall, GuruFocus ranks Agilent Technologies's profitability as fair. This is the revenue and net income of Agilent Technologies 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. Agilent Technologies's 3-year average revenue growth rate is in the middle range of the companies in the industry of Medical Diagnostics & Research. Agilent Technologies's 3-year average EBITDA growth rate is 5.5%, which ranks in the middle range of the companies in the industry of Medical Diagnostics & Research.
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, Agilent Technologies's return on invested capital is 10.87, and its cost of capital is 7.06. The historical ROIC vs WACC comparison of Agilent Technologies is shown below:
Overall, The stock of Agilent Technologies (NYSE:A, 30-year Financials) is estimated to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Medical Diagnostics & Research. To learn more about Agilent Technologies stock, you can check out its 30-year Financials here.
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