The stock of JRSIS Health Care (OTCPK:JRSS, 30-year Financials) shows every sign of being 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 $0.4 per share and the market cap of $7.3 million, JRSIS Health Care stock is believed to be possible value trap. GF Value for JRSIS Health Care is shown in the chart below.
The reason we think that JRSIS Health Care stock might be a value trap is because JRSIS Health Care has an Altman Z-score of 1.03, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions. To learn more about how the Z-score measures the financial risk of the company, please go here.
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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. JRSIS Health Care has a cash-to-debt ratio of 0.02, which is in the bottom 10% of the companies in the industry of Healthcare Providers & Services. The overall financial strength of JRSIS Health Care is 3 out of 10, which indicates that the financial strength of JRSIS Health Care is poor. This is the debt and cash of JRSIS Health Care 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. JRSIS Health Care has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $37 million and earnings of $0.156 a share. Its operating margin is 18.21%, which ranks better than 89% of the companies in the industry of Healthcare Providers & Services. Overall, GuruFocus ranks the profitability of JRSIS Health Care at 7 out of 10, which indicates fair profitability. This is the revenue and net income of JRSIS Health Care 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 JRSIS Health Care is 11.6%, which ranks better than 68% of the companies in the industry of Healthcare Providers & Services. The 3-year average EBITDA growth rate is -2.8%, which ranks worse than 72% of the companies in the industry of Healthcare Providers & Services.
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, JRSIS Health Care’s ROIC is 9.77 while its WACC came in at 9.03.
In closing, the stock of JRSIS Health Care (OTCPK:JRSS, 30-year Financials) shows every sign of being possible value trap. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 72% of the companies in the industry of Healthcare Providers & Services. To learn more about JRSIS Health Care stock, you can check out its 30-year Financials here.
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