The stock of United Therapeutics (NAS:UTHR, 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 $195.62 per share and the market cap of $8.8 billion, United Therapeutics stock gives every indication of being significantly overvalued. GF Value for United Therapeutics is shown in the chart below.
Because United Therapeutics is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which is estimated to grow 4.27% annually over the next three to five years.
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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. United Therapeutics has a cash-to-debt ratio of 2.16, which which ranks worse than 73% of the companies in Biotechnology industry. The overall financial strength of United Therapeutics is 7 out of 10, which indicates that the financial strength of United Therapeutics is fair. This is the debt and cash of United Therapeutics 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. United Therapeutics has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $1.5 billion and earnings of $9.05 a share. Its operating margin of 24.04% better than 89% of the companies in Biotechnology industry. Overall, GuruFocus ranks United Therapeutics's profitability as fair. This is the revenue and net income of United Therapeutics 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 United Therapeutics is -4.7%, which ranks in the middle range of the companies in Biotechnology industry. The 3-year average EBITDA growth rate is -4%, which ranks worse than 66% of the companies in Biotechnology industry.
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, United Therapeutics's return on invested capital is 11.41, and its cost of capital is 4.36. The historical ROIC vs WACC comparison of United Therapeutics is shown below:
Overall, the stock of United Therapeutics (NAS:UTHR, 30-year Financials) is estimated to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 66% of the companies in Biotechnology industry. To learn more about United Therapeutics stock, you can check out its 30-year Financials here.
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