Perrigo Co PLC Stock Is Estimated To Be Modestly Undervalued
- By GF Value
The stock of Perrigo Co PLC (NYSE:PRGO, 30-year Financials) appears to be modestly undervalued, 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 $40.275 per share and the market cap of $5.4 billion, Perrigo Co PLC stock is estimated to be modestly undervalued. GF Value for Perrigo Co PLC is shown in the chart below.
Because Perrigo Co PLC is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 2.4% over the past five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Perrigo Co PLC has a cash-to-debt ratio of 0.18, which which ranks worse than 80% of the companies in Drug Manufacturers industry. The overall financial strength of Perrigo Co PLC is 4 out of 10, which indicates that the financial strength of Perrigo Co PLC is poor. This is the debt and cash of Perrigo Co PLC 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. Perrigo Co PLC has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $5.1 billion and loss of $1.2 a share. Its operating margin is 9.20%, which ranks in the middle range of the companies in Drug Manufacturers industry. Overall, GuruFocus ranks the profitability of Perrigo Co PLC at 6 out of 10, which indicates fair profitability. This is the revenue and net income of Perrigo Co PLC over the past years:
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Perrigo Co PLC's 3-year average revenue growth rate is in the middle range of the companies in Drug Manufacturers industry. Perrigo Co PLC's 3-year average EBITDA growth rate is -31%, which ranks worse than 87% of the companies in Drug Manufacturers 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, Perrigo Co PLC's ROIC was 5.34, while its WACC came in at 5.68. The historical ROIC vs WACC comparison of Perrigo Co PLC is shown below:
In short, The stock of Perrigo Co PLC (NYSE:PRGO, 30-year Financials) is estimated to be modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 87% of the companies in Drug Manufacturers industry. To learn more about Perrigo Co PLC stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
