Unveiling Steris PLC (STE)'s Value: Is It Really Priced Right? A Comprehensive Guide
Steris PLC (NYSE:STE) recently experienced a daily gain of 2.98%, with a 3-month gain of 11.15%. Its Earnings Per Share (EPS) stand at 1.22. Despite these positive figures, the question arises - is the stock modestly undervalued? This article aims to provide a comprehensive analysis of Steris PLC's valuation, financial strength, and growth prospects to answer this question. Let's dive in.
Company Introduction
Steris PLC is an Ireland-domiciled medical device company specializing in sterilization services and infection prevention. As a global leader in contract sterilization services, Steris ensures the safe delivery of single-use and implantable medical equipment to hospitals worldwide. The company also sells sterilizers, washer-disinfectors, and other decontamination equipment and supplies. While Steris is now domiciled in Ireland, it still derives approximately 70% of its revenue from its U.S. operations, 10% from the United Kingdom, and the remaining 20% from other international regions.
The company's stock price is currently $229.38, while its GF Value, an estimation of fair value, is $261. This discrepancy suggests that the stock may be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on three factors: historical multiples, a GuruFocus adjustment factor, and future business performance estimates. This value provides an ideal fair trading value for the stock, with the stock price expected to fluctuate around this line.
For Steris PLC, the GF Value suggests that the stock is modestly undervalued. This assessment is based on historical trading multiples, an internal adjustment factor based on the company's past business growth, and analyst estimates of future business performance. Therefore, Steris PLC's stock could potentially offer higher future returns due to its current undervalued status.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with low financial strength can result in permanent capital loss. Therefore, it is crucial to review a company's financial strength before purchasing shares. Steris PLC's cash-to-debt ratio is 0.07, ranking worse than 94.36% of companies in the Medical Devices & Instruments industry. However, GuruFocus ranks Steris PLC's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Consistent profitability over the long term reduces risk for investors. Steris PLC has been profitable for 10 out of the past 10 years. With a revenue of $5.10 billion over the past twelve months and an Earnings Per Share (EPS) of $1.22, Steris PLC's operating margin is 15.53%, ranking better than 76.21% of companies in the Medical Devices & Instruments industry. Its profitability is ranked 9 out of 10, indicating strong profitability.
However, growth is a critical factor in a company's valuation. Steris PLC's 3-year average annual revenue growth rate is 11.8%, ranking better than 62.57% of companies in the Medical Devices & Instruments industry. Its 3-year average EBITDA growth rate is -1.6%, ranking worse than 64.25% of companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted average cost of capital (WACC) can provide insights into its profitability. For the past 12 months, Steris PLC's ROIC is 5.12, and its WACC is 9.77.
Conclusion
In conclusion, Steris PLC's stock appears to be modestly undervalued. The company has fair financial strength and strong profitability. However, its growth ranks worse than 64.25% of companies in the Medical Devices & Instruments industry. For more detailed financial information about Steris PLC, you can check out its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, check out the GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.
