The stock of Viemed Healthcare (NAS:VMD, 30-year Financials) gives every indication of being possible value trap, 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 $7.15 per share and the market cap of $282.9 million, Viemed Healthcare stock gives every indication of being possible value trap. GF Value for Viemed Healthcare is shown in the chart below.
The reason we think that Viemed Healthcare stock might be a value trap is because
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company’s financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company’s financial strength. Viemed Healthcare has a cash-to-debt ratio of 3.23, which ranks in the middle range of the companies in the industry of Medical Devices & Instruments. Based on this, GuruFocus ranks Viemed Healthcare’s financial strength as 8 out of 10, suggesting strong balance sheet. This is the debt and cash of Viemed Healthcare 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. Viemed Healthcare has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $135.9 million and earnings of $0.71 a share. Its operating margin of 13.97% better than 71% of the companies in the industry of Medical Devices & Instruments. Overall, GuruFocus ranks Viemed Healthcare’s profitability as fair. This is the revenue and net income of Viemed Healthcare over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance 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 Viemed Healthcare is 38%, which ranks better than 90% of the companies in the industry of Medical Devices & Instruments. The 3-year average EBITDA growth rate is 46%, which ranks better than 81% of the companies in the industry of Medical Devices & Instruments.
One can also evaluate a company’s profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Viemed Healthcare’s ROIC is 30.51 while its WACC came in at 5.41.
Overall, the stock of Viemed Healthcare (NAS:VMD, 30-year Financials) is estimated to be possible value trap. The company's financial condition is strong and its profitability is fair. Its growth ranks better than 81% 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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