- By GF Value
The stock of Viemed Healthcare (NAS:VMD, 30-year Financials) gives every indication of being fairly valued, 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 $10.19 per share and the market cap of $402.4 million, Viemed Healthcare stock appears to be fairly valued. GF Value for Viemed Healthcare is shown in the chart below.
Because Viemed Healthcare is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 38% over the past three years and is estimated to grow 17.44% annually over the next three to five years.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Viemed Healthcare has a cash-to-debt ratio of 2.78, which is in the middle range of the companies in the industry of Medical Devices & Instruments. The overall financial strength of Viemed Healthcare is 8 out of 10, which indicates that the financial strength of Viemed Healthcare is strong. This is the debt and cash of Viemed Healthcare over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Viemed Healthcare has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $131.3 million and earnings of $0.78 a share. Its operating margin is 15.90%, which ranks better than 77% of the companies in the industry of Medical Devices & Instruments. Overall, the profitability of Viemed Healthcare is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Viemed Healthcare over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Viemed Healthcare is 38%, which ranks better than 91% of the companies in the industry of Medical Devices & Instruments. The 3-year average EBITDA growth is 46%, which ranks better than 85% of the companies in the industry of Medical Devices & Instruments.
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, Viemed Healthcare's ROIC was 33.39, while its WACC came in at 6.72. The historical ROIC vs WACC comparison of Viemed Healthcare is shown below:
In summary, the stock of Viemed Healthcare (NAS:VMD, 30-year Financials) is estimated to be fairly valued. The company's financial condition is strong and its profitability is fair. Its growth ranks better than 85% of the companies in the industry of Medical Devices & Instruments. To learn more about Viemed Healthcare stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.