Waters Corp (WAT, Financial) experienced a daily loss of -3.01%, with a 3-month gain of 4.26%. The company boasts an Earnings Per Share (EPS) of 11.34. Considering these figures, is the stock modestly undervalued? This article attempts to answer this question through a comprehensive valuation analysis. Let's delve into the details.
Company Overview
Waters Corp (WAT, Financial) specializes in the sale of liquid chromatography, mass spectrometry, and thermal analysis tools. These analytical instruments provide essential information on various products, such as their molecular structures and physical properties. This information assists clients in enhancing the health and well-being of end users. In 2022, Waters generated 59% of its sales from pharmaceutical customers, 31% from industrial clients, and 10% from academic/government institutions. The stock currently trades at $276.89 per share, which when compared to its GF Value of $356.38, suggests that it might be undervalued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value that the stock should ideally be traded at.
According to GuruFocus Value calculation, the stock of Waters is believed to be modestly undervalued. The current price of $276.89 per share and the market cap of $16.40 billion suggest that Waters stock might be undervalued. Since Waters is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's essential to carefully review a company's financial strength before deciding whether to buy shares. Waters has a cash-to-debt ratio of 0.12, which ranks worse than 86.5% of companies in the Medical Diagnostics & Research industry. Based on this, GuruFocus ranks Waters's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Waters has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $3 billion and Earnings Per Share (EPS) of $11.34. Its operating margin is 28.48%, which ranks better than 94.62% of companies in the Medical Diagnostics & Research industry. Overall, the profitability of Waters is ranked 10 out of 10, indicating strong profitability.
Growth is probably the most important factor in the valuation of a company. The 3-year average annual revenue growth of Waters is 11.7%, which ranks better than 51.98% of companies in the Medical Diagnostics & Research industry. The 3-year average EBITDA growth rate is 11.4%, which ranks worse than 50.26% of companies in the Medical Diagnostics & Research industry.
ROIC vs 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, Waters's ROIC was 25.64, while its WACC came in at 8.97.
Conclusion
In summary, the stock of Waters is believed to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 50.26% of companies in the Medical Diagnostics & Research industry. To learn more about Waters stock, you can check out its 30-Year Financials here.
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