Unveiling Penumbra (PEN)'s Value: Is It Really Priced Right? A Comprehensive Guide
Penumbra Inc (NYSE:PEN) had a daily gain of 4.83%, but a 3-month loss of -14.28%. With an Earnings Per Share (EPS) of 0.74, we delve into the question: is the stock modestly undervalued? This article presents a comprehensive valuation analysis of Penumbra (NYSE:PEN) to provide an answer. Read on for an engaging exploration of Penumbra's financial health, growth prospects, and intrinsic value.
Company Overview
Penumbra Inc is a leading innovator in the medical devices industry, focusing on the neurovascular and peripheral vascular markets. The company's products, primarily sold to hospitals, are designed for use by specialist physicians. Penumbra's neurovascular product category contributes significantly to its revenue, encompassing products for neurovascular access, ischemic stroke, neurovascular embolization, and neurosurgical tool markets. The peripheral vascular business sells devices related to peripheral embolization and peripheral thrombectomy. The majority of Penumbra's revenue is generated in the United States.
At a current price of $274.77 per share, Penumbra has a market cap of $10.60 billion. When compared with the GF Value of $331.39, the stock appears to be modestly undervalued.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an ideal fair trading value for the stock. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Given this, Penumbra appears to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy its stock. The cash-to-debt ratio and interest coverage serve as excellent indicators of financial strength. Penumbra's cash-to-debt ratio of 0.96 is lower than 66.71% of 835 companies in the Medical Devices & Instruments industry. However, GuruFocus ranks Penumbra's overall financial strength at 8 out of 10, indicating strong financial health.
Profitability and Growth
Investing in profitable companies, particularly those with consistent long-term profitability, is generally less risky. Companies with high profit margins are typically safer investments than those with low profit margins. Penumbra has been profitable 8 out of the past 10 years. Over the past twelve months, the company had a revenue of $937.80 million and Earnings Per Share (EPS) of $0.74. Its operating margin is 3.86%, ranking better than 54.96% of 826 companies in the Medical Devices & Instruments industry. Overall, Penumbra's profitability is ranked 7 out of 10, indicating fair profitability.
Growth is a crucial factor in a company's valuation. Research by GuruFocus has found that growth is closely correlated with the long-term performance of a company's stock. Companies that are growing faster are more likely to be creating value for shareholders, especially if the growth is profitable. Penumbra's 3-year average annual revenue growth rate is14%, ranking better than 66.02% of 724 companies in the Medical Devices & Instruments industry. However, its 3-year average EBITDA growth rate is -19.4%, ranking worse than 84.09% of 729 companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Penumbra's ROIC was 2.62, while its WACC came in at 6.01.
Conclusion
In summary, the stock of Penumbra appears to be modestly undervalued. The company's financial condition is strong, and its profitability is fair. However, its growth ranks worse than 84.09% of 729 companies in the Medical Devices & Instruments industry. To learn more about Penumbra stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
