Today, Stryker Corp (SYK, Financial) experienced a daily change of 3.27%, with an Earnings Per Share (EPS) of 6.87. The question on the minds of many investors is whether the stock is fairly valued. This article offers an in-depth valuation analysis of Stryker Corp (SYK). We invite our readers to delve into the following analysis for a comprehensive understanding of the company's value.
Stryker (SYK, Financial) is a leading name in the medical equipment manufacturing sector. The company designs, produces, and markets a wide range of medical equipment, instruments, consumable supplies, and implantable devices. Its product portfolio includes hip and knee replacements, endoscopy systems, operating room equipment, embolic coils, hospital beds, gurneys, and spinal devices. Stryker holds a significant market position in reconstructive orthopedic implants and operating room equipment. The company generates over a quarter of its total revenue from markets outside the United States.
With a current stock price of $284.62, Stryker Corp (SYK, Financial) boasts a market cap of $108 billion. The company's GF Value, a proprietary measure of a stock's intrinsic value, stands at $294.49, suggesting that the stock is fairly valued.
Understanding the GF Value
The GF Value is a unique valuation method that considers historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's ideal fair trading value. If the stock price significantly deviates from the GF Value Line, it indicates potential overvaluation or undervaluation, which could impact future returns.
Stryker, at its current price of $284.62 per share, is estimated to be fairly valued according to the GF Value. This valuation suggests that the long-term return of Stryker's stock is likely to align with the rate of its business growth.
Financial Strength Assessment
Before investing in a company, it's crucial to evaluate its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. Key indicators like the cash-to-debt ratio and interest coverage can provide insights into a company's financial health. Stryker's cash-to-debt ratio of 0.14 ranks lower than 90.51% of companies in the Medical Devices & Instruments industry. With an overall financial strength score of 4 out of 10, Stryker's financial health appears to be relatively weak.
Profitability and Growth
Investing in profitable companies, especially those with consistent long-term profitability, tends to be less risky. Stryker has been profitable for 10 out of the past 10 years, boasting a revenue of $19 billion and an Earnings Per Share (EPS) of $6.87 over the past twelve months. Its operating margin of 17.5% ranks better than 78.76% of companies in the Medical Devices & Instruments industry. Overall, Stryker's profitability is ranked 9 out of 10, indicating strong profitability.
Growth is a critical factor in a company's valuation. Faster-growing companies are more likely to create value for shareholders, especially if the growth is profitable. Stryker's 3-year average annual revenue growth rate is 7.2%, ranking better than 50.07% of companies in the Medical Devices & Instruments industry. However, its 3-year average EBITDA growth rate is 2.9%, ranking worse than 59.61% of companies in the industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC) can provide insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate a company is expected to pay on average to finance its assets. Ideally, ROIC should be higher than WACC. For the past 12 months, Stryker's ROIC was 9.42, and its WACC was 8.69.
In conclusion, Stryker (SYK, Financial) appears to be fairly valued. While the company's financial condition is somewhat weak, it demonstrates strong profitability. Its growth ranks below 59.61% of companies in the Medical Devices & Instruments industry. For more insights on Stryker stock, check out its 30-Year Financials here.
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