Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Tandem Diabetes Care Inc (TNDM, Financial). The stock, which is currently priced at $17.82, recorded a gain of 18.96% in a day and a 3-month decrease of 38.23%. The stock's fair valuation, according to the GF Value, is $80.21.
Decoding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples such as PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow, an adjustment factor based on past returns and growth, and future business performance estimates. It serves as a benchmark, suggesting that if a stock price is significantly below the GF Value Line, it may offer higher future returns, while a price above indicates potential overvaluation and poorer future returns.
Exploring the Risks of Tandem Diabetes Care (TNDM, Financial)
Despite the apparent undervaluation of Tandem Diabetes Care (TNDM), several risk factors should not be overlooked. The company's low Piotroski F-score of 2, and Altman Z-score of 0.42 are indicators that suggest potential financial distress and the possibility of Tandem Diabetes Care being a value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Understanding the Financial Health Indicators
The Piotroski F-score is a comprehensive tool for assessing a company's financial health across profitability, leverage, liquidity, and operating efficiency. Tandem Diabetes Care's low score indicates potential red flags for investors. The Altman Z-score, another critical financial health indicator, predicts the likelihood of bankruptcy. Tandem Diabetes Care's score of 0.42 is well below the 1.8 threshold, suggesting high financial distress risk.
Company Overview
Tandem Diabetes Care designs, manufactures, and markets insulin pumps for diabetes patients, with the majority of its revenue generated in the U.S. The firm's current market cap is $1.20 billion, with sales reaching $771.40 million. However, the company's operating margin and return on invested capital (ROIC) are negative, at -32.01 and -67.51, respectively, against a weighted average cost of capital (WACC) of 8.5. These figures raise questions about the company's profitability and financial management.
Profitability Concerns
A closer look at Tandem Diabetes Care's return on assets (ROA) reveals a worrying trend of negative returns, indicating the company's inability to generate profit from its assets. The decline in ROA from 2.87 in 2021 to -21.09 in 2023 is concerning, as it suggests deteriorating financial performance and potential risks for investors.
The discrepancy between the company's cash flow from operations at $-18.77 million and a much higher net income loss of $-208.46 million over the trailing twelve months (TTM) is a red flag, indicating poor earnings quality and potential challenges in sustaining operations or financing obligations.
Leverage, Liquidity, and Source of Funds: A Worrying Trend
The alarming rise in Tandem Diabetes Care's debt-to-total assets ratio from 0.37 in 2021 to 0.45 in 2023 suggests increasing financial risk due to higher leverage. Additionally, the decline in the current ratio from 6.31 in 2021 to 4.05 in 2023 indicates worsening short-term financial health and liquidity.
Operating Efficiency: A Darker Picture
The increase in Tandem Diabetes Care's Diluted Average Shares Outstanding over the past three years, from 64.78 to 65.12, suggests share dilution and potential value erosion for existing shareholders. The declining gross margin percentage, from 53.42 in 2021 to 50.55 in 2023, and the decreasing asset turnover, from 0.87 in 2021 to 0.78 in 2023, reflect operational challenges that may impact profitability and efficiency.
Despite the stock's seemingly attractive valuation, Tandem Diabetes Care's financial health indicators such as the Piotroski F-score and Altman Z-score suggest that it could be a potential value trap. Investors should exercise caution and conduct thorough research before considering an investment in Tandem Diabetes Care.
GuruFocus Premium members can find stocks with high Piotroski F-scores using the Piotroski F-score screener and stocks with high Altman Z-Scores using the Walter Schloss Screen.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
