The stock of Computer Programs and Systems (NAS:CPSI, 30-year Financials) shows every sign of being significantly overvalued, 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 $31.83 per share and the market cap of $468.8 million, Computer Programs and Systems stock is estimated to be significantly overvalued. GF Value for Computer Programs and Systems is shown in the chart below.
Because Computer Programs and Systems is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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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. Computer Programs and Systems has a cash-to-debt ratio of 0.23, which which ranks worse than 73% of the companies in the industry of Healthcare Providers & Services. The overall financial strength of Computer Programs and Systems is 6 out of 10, which indicates that the financial strength of Computer Programs and Systems is fair. This is the debt and cash of Computer Programs and Systems over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Computer Programs and Systems has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $262.7 million and earnings of $0.98 a share. Its operating margin is 7.55%, which ranks in the middle range of the companies in the industry of Healthcare Providers & Services. Overall, GuruFocus ranks the profitability of Computer Programs and Systems at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Computer Programs and Systems 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. Computer Programs and Systems’s 3-year average revenue growth rate is worse than 74% of the companies in the industry of Healthcare Providers & Services. Computer Programs and Systems’s 3-year average EBITDA growth rate is 68.5%, which ranks better than 94% of the companies in the industry of Healthcare Providers & Services.
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, Computer Programs and Systems’s ROIC was 5.13, while its WACC came in at 5.19. The historical ROIC vs WACC comparison of Computer Programs and Systems is shown below:
To conclude, the stock of Computer Programs and Systems (NAS:CPSI, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 94% of the companies in the industry of Healthcare Providers & Services. To learn more about Computer Programs and Systems stock, you can check out its 30-year Financials here.
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