The stock of Icon PLC (NAS:ICLR, 30-year Financials) is believed to be 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 $224.27 per share and the market cap of $11.9 billion, Icon PLC stock shows every sign of being modestly overvalued. GF Value for Icon PLC is shown in the chart below.
Because Icon PLC is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 17.9% over the past three years and is estimated to grow 12.03% 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. Icon PLC has a cash-to-debt ratio of 2.36, which is in the middle range of the companies in the industry of Medical Diagnostics & Research. The overall financial strength of Icon PLC is 7 out of 10, which indicates that the financial strength of Icon PLC is fair. This is the debt and cash of Icon PLC 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. Icon PLC has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2.9 billion and earnings of $6.34 a share. Its operating margin is 14.26%, which ranks better than 69% of the companies in the industry of Medical Diagnostics & Research. Overall, the profitability of Icon PLC is ranked 9 out of 10, which indicates strong profitability. This is the revenue and net income of Icon PLC over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Icon PLC is 17.9%, which ranks better than 71% of the companies in the industry of Medical Diagnostics & Research. The 3-year average EBITDA growth is 5.6%, which ranks in the middle range of the companies in the industry of Medical Diagnostics & Research.
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, Icon PLC's ROIC was 14.74, while its WACC came in at 5.65. The historical ROIC vs WACC comparison of Icon PLC is shown below:
In short, The stock of Icon PLC (NAS:ICLR, 30-year Financials) is estimated to be modestly 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 Diagnostics & Research. To learn more about Icon PLC stock, you can check out its 30-year Financials here.
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