- By GF Value
The stock of Utah Medical Products (NAS:UTMD, 30-year Financials) shows every sign 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 $87.54 per share and the market cap of $319.2 million, Utah Medical Products stock is believed to be fairly valued. GF Value for Utah Medical Products is shown in the chart below.
Because Utah Medical Products is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 1.2% over the past five years.
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Utah Medical Products has a cash-to-debt ratio of 154.00, which which ranks better than 85% of the companies in the industry of Medical Devices & Instruments. The overall financial strength of Utah Medical Products is 8 out of 10, which indicates that the financial strength of Utah Medical Products is strong. This is the debt and cash of Utah Medical Products over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Utah Medical Products has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $42.2 million and earnings of $2.934 a share. Its operating margin of 32.50% better than 93% of the companies in the industry of Medical Devices & Instruments. Overall, GuruFocus ranks Utah Medical Products's profitability as strong. This is the revenue and net income of Utah Medical Products over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Utah Medical Products's 3-year average revenue growth rate is in the middle range of the companies in the industry of Medical Devices & Instruments. Utah Medical Products's 3-year average EBITDA growth rate is -0.8%, which ranks worse than 69% of the companies in the industry of Medical Devices & Instruments.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Utah Medical Products's return on invested capital is 18.14, and its cost of capital is 3.08. The historical ROIC vs WACC comparison of Utah Medical Products is shown below:
In summary, the stock of Utah Medical Products (NAS:UTMD, 30-year Financials) appears to be fairly valued. The company's financial condition is strong and its profitability is strong. Its growth ranks worse than 69% of the companies in the industry of Medical Devices & Instruments. To learn more about Utah Medical Products stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.