On September 26, 2023, R1 RCM Inc (RCM, Financial) recorded a day's change of -4.87% with its stock price standing at $15.03. Over the past three months, the company has experienced a loss of -12.57%. Despite this, R1 RCM (RCM) reported a Loss Per Share of 0.16. This raises the question: Is the stock fairly valued?
This article presents a valuation analysis of R1 RCM, providing investors with an in-depth look at the company's intrinsic value. We encourage you to read on to gain valuable insights into R1 RCM's current valuation and future prospects.
R1 RCM Inc is a leading provider of technology-driven solutions that transform the patient experience and financial performance of healthcare providers. The company's services help healthcare providers generate sustainable improvements in their operating margins and cash flows while enhancing patient, physician, and staff satisfaction. The majority of the revenue comes from the operating fees received.
As of the date of this analysis, R1 RCM has a market cap of $6.30 billion and its stock price is $15.03 per share, which gives every indication of being fairly valued when compared to its GF Value of $15.61.
Understanding the GF Value
The GF Value is a proprietary measure that reflects the current intrinsic value of a stock. The GF Value Line on our summary page represents the fair value at which the stock should be traded. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
We believe the GF Value Line is the fair value at which the stock should be traded. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
At its current price of $15.03 per share, R1 RCM (RCM, Financial) has a market cap of $6.30 billion and the stock gives every indication of being fairly valued. Therefore, the long-term return of its stock is likely to be close to the rate of its business growth.
Investing in companies with low financial strength could result in permanent capital loss. Therefore, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. R1 RCM has a cash-to-debt ratio of 0.07, which ranks worse than 86.59% of 656 companies in the Healthcare Providers & Services industry. Based on this, GuruFocus ranks R1 RCM's financial strength as 5 out of 10, suggesting fair balance sheet.
Profitability and Growth
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. R1 RCM has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $2.10 billion and Loss Per Share of $0.16. Its operating margin of 8.96% is better than 69.14% of 661 companies in the Healthcare Providers & Services industry. Overall, GuruFocus ranks R1 RCM's profitability as fair.
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 R1 RCM is -21.6%, which ranks worse than 92.84% of 573 companies in the Healthcare Providers & Services industry. The 3-year average EBITDA growth rate is -16.3%, which ranks worse than 82.57% of 522 companies in the Healthcare Providers & Services industry.
ROIC vs WACC
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, R1 RCM's return on invested capital is 4.32, and its cost of capital is 6.56.
Overall, the stock of R1 RCM (RCM, Financial) gives every indication of being fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 82.57% of 522 companies in the Healthcare Providers & Services industry. To learn more about R1 RCM stock, you can check out its 30-Year Financials here.
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