Unveiling UFP Technologies (UFPT)'s Value: Is It Really Priced Right? A Comprehensive Guide
UFP Technologies Inc (NASDAQ:UFPT), a renowned designer and custom manufacturer in the medical market, has witnessed a daily gain of 4.7% and a 3-month loss of 15.73%. The company's Earnings Per Share (EPS) stands at 6.48. However, the question that arises is whether the stock is modestly overvalued. This article will provide an in-depth valuation analysis of UFP Technologies, offering valuable insights to potential investors.
Introduction to UFP Technologies
UFP Technologies Inc (NASDAQ:UFPT) is a leading designer and custom manufacturer of components, subassemblies, products, and packaging. The company primarily serves the medical market, utilizing highly specialized foams, films, and plastics. As an essential link in the medical device supply chain, UFP Technologies is a valued outsource partner to many top medical device manufacturers globally. Its single-use and single-patient devices and components are used in a wide range of medical devices, disposable wound care products, infection prevention, minimally invasive surgery, wearables, orthopedic soft goods, and orthopedic implant packaging.
With a stock price of $166.11, the company's current market cap stands at $1.30 billion. However, the GF Value, an estimation of fair value, is $135.98, suggesting that the stock might be modestly overvalued.
Understanding GF Value
The GF Value is an exclusive measure that represents the current intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line on our summary page gives an overview of the fair value at which the stock should ideally be trading. If the stock price 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.
UFP Technologies (NASDAQ:UFPT) is estimated to be modestly overvalued based on GuruFocus' valuation method. This means that the long-term return of its stock is likely to be lower than its business growth.
Financial Strength of UFP Technologies
Before investing in a company, it's crucial to check its financial strength. Investing in companies with poor financial strength can lead to a higher risk of permanent loss. A great way to understand a company's financial strength is by looking at the cash-to-debt ratio and interest coverage. UFP Technologies has a cash-to-debt ratio of 0.07, which is worse than 94.71% of 832 companies in the Medical Devices & Instruments industry. The overall financial strength of UFP Technologies is 7 out of 10, indicating fair financial strength.
Profitability and Growth of UFP Technologies
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. UFP Technologies has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $386 million and Earnings Per Share (EPS) of $6.48. Its operating margin is 15.06%, which ranks better than 75.24% of 828 companies in the Medical Devices & Instruments industry. Overall, the profitability of UFP Technologies is ranked 8 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation 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 UFP Technologies is 20.5%, which ranks better than 77.47% of 728 companies in the Medical Devices & Instruments industry. The 3-year average EBITDA growth rate is 26.7%, which ranks better than 73.15% of 730 companies in the Medical Devices & Instruments industry.
ROIC vs WACC
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, UFP Technologies's ROIC was 13.36, while its WACC came in at 8.73.
Conclusion
In conclusion, the stock of UFP Technologies (NASDAQ:UFPT) is estimated to be modestly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 73.15% of 730 companies in the Medical Devices & Instruments industry. To learn more about UFP Technologies stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
