Clinigence Holdings Stock Is Believed To Be Possible Value Trap
- By GF Value
The stock of Clinigence Holdings (OTCPK:CLNH, 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 $2.5 per share and the market cap of $98.1 million, Clinigence Holdings stock shows every sign of being possible value trap. GF Value for Clinigence Holdings is shown in the chart below.
The reason we think that Clinigence Holdings stock might be a value trap is because Clinigence Holdings has an Altman Z-score of -202.93, 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.
Link: These companies may deliever higher future returns at reduced risk.
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Clinigence Holdings has a cash-to-debt ratio of 0.06, which is in the bottom 10% of the companies in the industry of Healthcare Providers & Services. GuruFocus ranks the overall financial strength of Clinigence Holdings at 2 out of 10, which indicates that the financial strength of Clinigence Holdings is poor. This is the debt and cash of Clinigence Holdings over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Clinigence Holdings has been profitable 3 over the past 10 years. Over the past twelve months, the company had a revenue of $1.6 million and loss of $1.17 a share. Its operating margin is -221.93%, which ranks in the bottom 10% of the companies in the industry of Healthcare Providers & Services. Overall, the profitability of Clinigence Holdings is ranked 1 out of 10, which indicates poor profitability. This is the revenue and net income of Clinigence Holdings 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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Clinigence Holdings is 32.5%, which ranks better than 91% of the companies in the industry of Healthcare Providers & Services. The 3-year average EBITDA growth rate is 67.6%, which ranks better than 94% of the companies in the industry of Healthcare Providers & Services.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Clinigence Holdings's ROIC was -56.12, while its WACC came in at 14.71.
In closing, The stock of Clinigence Holdings (OTCPK:CLNH, 30-year Financials) shows every sign of being possible value trap. The company's financial condition is poor and its profitability is poor. Its growth ranks better than 94% of the companies in the industry of Healthcare Providers & Services. To learn more about Clinigence Holdings stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.
