Invitae Stock Is Estimated To Be Significantly Overvalued
- By GF Value
The stock of Invitae (NYSE:NVTA, 30-year Financials) is believed to be significantly overvalued, 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 $30.52 per share and the market cap of $6.1 billion, Invitae stock is estimated to be significantly overvalued. GF Value for Invitae is shown in the chart below.
Because Invitae is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 12.3% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, 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. Invitae has a cash-to-debt ratio of 1.23, which ranks in the middle range of the companies in the industry of Medical Diagnostics & Research. Based on this, GuruFocus ranks Invitae's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Invitae over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Invitae has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $319 million and loss of $3.97 a share. Its operating margin is -209.03%, which ranks worse than 82% of the companies in the industry of Medical Diagnostics & Research. Overall, GuruFocus ranks the profitability of Invitae at 2 out of 10, which indicates poor profitability. This is the revenue and net income of Invitae 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 Invitae is 12.3%, which ranks in the middle range of the companies in the industry of Medical Diagnostics & Research. The 3-year average EBITDA growth rate is -25.7%, which ranks worse than 86% of the companies in the industry of Medical Diagnostics & Research.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Invitae's ROIC is -35.38 while its WACC came in at 12.67. The historical ROIC vs WACC comparison of Invitae is shown below:
To conclude, The stock of Invitae (NYSE:NVTA, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks worse than 86% of the companies in the industry of Medical Diagnostics & Research. To learn more about Invitae stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
