Waters (WAT): An Undervalued Gem in the Medical Diagnostics Industry?
Waters Corp (NYSE:WAT) has recently seen a daily gain of 2.96%, and a 3-month gain of 7.85%. With an Earnings Per Share (EPS) of 11.34, the stock appears to be modestly undervalued. This article seeks to provide a comprehensive valuation analysis of Waters Corp, offering valuable insights for investors considering this stock. Read on for a detailed exploration of the company's financial health, profitability, and growth prospects.
Company Overview
Waters Corp is a leading provider of liquid chromatography, mass spectrometry, and thermal analysis tools. These analytical instruments offer critical insights into the molecular structures and physical properties of various products, contributing significantly to the health and well-being of end users. In 2022, Waters generated 59% of its sales from pharmaceutical customers, 31% from industrial clients, and 10% from academic/government institutions. With a current stock price of $281.45, and a fair value (GF Value) of $357.27, the company appears to be modestly undervalued.
Understanding the 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. 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.
Waters (NYSE:WAT) stock, with a market cap of $16.60 billion, shows every sign of being modestly undervalued. As such, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to carefully review a company's financial strength before deciding to buy shares. Waters has a cash-to-debt ratio of 0.12, ranking worse than 86.67% of 225 companies in the Medical Diagnostics & Research industry. GuruFocus ranks Waters's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
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. Waters has been profitable for 10 out of the past 10 years. Over the past twelve months, the company had a revenue of $3 billion and Earnings Per Share (EPS) of $11.34. Its operating margin is 28.48%, ranking better than 93.72% of 223 companies in the Medical Diagnostics & Research industry. Overall, the profitability of Waters is ranked 10 out of 10, indicating strong profitability.
Growth is probably one of the most important factors in the valuation of a company. Waters's 3-year average revenue growth rate is better than 52.97% of 202 companies in the Medical Diagnostics & Research industry. Waters's 3-year average EBITDA growth rate is 11.4%, which ranks better than 50% of 190 companies in the Medical Diagnostics & Research 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. Over the past 12 months, Waters's ROIC was 25.64, while its WACC came in at 8.98.
Conclusion
Overall, Waters (NYSE:WAT) stock shows every sign of being modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 50% of 190 companies in the Medical Diagnostics & Research industry. To learn more about Waters stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
