Unveiling Globus Medical's True Worth: Is It Priced Right? A Comprehensive Guide
Globus Medical Inc (NYSE:GMED) saw a daily gain of 2.44%, despite a 3-month loss of -16.71%. With Earnings Per Share (EPS) standing at 2.01, the question arises: is the stock significantly undervalued? This article aims to provide a comprehensive valuation analysis of Globus Medical, encouraging readers to delve into the financial intricacies of the company.
Introduction to Globus Medical Inc
Globus Medical Inc is a medical device company that develops and provides healthcare products and solutions to hospitals, physicians, and surgical centers. Its products are divided into two categories: musculoskeletal solutions, which include medical devices and instruments used mostly for spinal and orthopedic procedures, and enabling technologies, which include advanced computer systems developed for enhancing surgical capabilities. The majority of the company's revenue is generated from musculoskeletal solutions products, with more than half of the revenue earned in the United States.
Currently, Globus Medical (NYSE:GMED) trades at $50.8 per share, with a market cap of $7.10 billion. However, its intrinsic value, as estimated by the GF Value, stands at $81.54, indicating that the stock may be significantly undervalued.
Understanding Globus Medical's GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value.
According to the GF Value, Globus Medical (NYSE:GMED) appears to be significantly undervalued. This suggests that the long-term return of its stock is likely to be much higher than its business growth.
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Globus Medical's Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Two important indicators of financial strength are the cash-to-debt ratio and interest coverage. Globus Medical has a cash-to-debt ratio of 10000, ranking better than 99.76% of 832 companies in the Medical Devices & Instruments industry. This indicates strong financial strength, with an overall rating of 10 out of 10.
Profitability and Growth of Globus Medical
Consistent profitability over the long term offers less risk for investors. Globus Medical has been profitable for 10 out of the past 10 years, indicating strong profitability. Over the past twelve months, the company had a revenue of $1.10 billion and Earnings Per Share (EPS) of $2.01. Its operating margin is 22.59%, ranking better than 86.96% of 828 companies in the Medical Devices & Instruments industry.
Another important factor in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Globus Medical is 9%, which ranks better than 54.53% of 728 companies in the Medical Devices & Instruments industry. The 3-year average EBITDA growth is 9.7%, ranking better than 52.13% of 729 companies in the industry.
Comparing ROIC and WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another method of determining its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Globus Medical's ROIC is 12.83, and its WACC is 11.42.
Conclusion
In conclusion, the stock of Globus Medical (NYSE:GMED) appears to be significantly undervalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 52.13% of 729 companies in the Medical Devices & Instruments industry. To learn more about Globus Medical stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
