- By GF Value
The stock of Cormedix (NAS:CRMD, 30-year Financials) gives every indication 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 $6.05 per share and the market cap of $230 million, Cormedix stock shows every sign of being possible value trap. GF Value for Cormedix is shown in the chart below.
The reason we think that Cormedix stock might be a value trap is because
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. Cormedix has a cash-to-debt ratio of 44.87, which is better than 66% of the companies in Biotechnology industry. GuruFocus ranks the overall financial strength of Cormedix at 5 out of 10, which indicates that the financial strength of Cormedix is fair. This is the debt and cash of Cormedix over the past years:
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. Cormedix has been profitable 0 years over the past 10 years. During the past 12 months, the company had revenues of $0.2 million and loss of $0.57 a share. Its operating margin of -11389.96% in the bottom 10% of the companies in Biotechnology industry. Overall, GuruFocus ranks Cormedix's profitability as poor. This is the revenue and net income of Cormedix 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 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 Cormedix is -33.1%, which ranks worse than 75% of the companies in Biotechnology industry. The 3-year average EBITDA growth rate is 29.4%, which ranks better than 74% of the companies in Biotechnology industry.
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, Cormedix's ROIC was -3874.71, while its WACC came in at 14.90. The historical ROIC vs WACC comparison of Cormedix is shown below:
In summary, the stock of Cormedix (NAS:CRMD, 30-year Financials) shows every sign of being possible value trap. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 74% of the companies in Biotechnology industry. To learn more about Cormedix stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.