The stock of Quidel (NAS:QDEL, 30-year Financials) is estimated to be possible value trap, 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 $107.22 per share and the market cap of $4.6 billion, Quidel stock is estimated to be possible value trap. GF Value for Quidel is shown in the chart below.
The reason we think that Quidel stock might be a value trap is because
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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. Quidel has a cash-to-debt ratio of 6.71, which which ranks better than 69% of the companies in the industry of Medical Diagnostics & Research. The overall financial strength of Quidel is 8 out of 10, which indicates that the financial strength of Quidel is strong. This is the debt and cash of Quidel over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Quidel has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $1.9 billion and earnings of $21.75 a share. Its operating margin is 66.34%, which ranks better than 98% of the companies in the industry of Medical Diagnostics & Research. Overall, GuruFocus ranks the profitability of Quidel at 6 out of 10, which indicates fair profitability. This is the revenue and net income of Quidel 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. Quidel's 3-year average revenue growth rate is better than 93% of the companies in the industry of Medical Diagnostics & Research. Quidel's 3-year average EBITDA growth rate is 176.3%, which ranks better than 99% of the companies in the industry of Medical Diagnostics & Research.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Quidel's ROIC is 102.40 while its WACC came in at 0.94. The historical ROIC vs WACC comparison of Quidel is shown below:
Overall, Quidel (NAS:QDEL, 30-year Financials) stock shows every sign of being possible value trap. 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 Diagnostics & Research. To learn more about Quidel stock, you can check out its 30-year Financials here.
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