Evolent Health Inc (EVH, Financial) recently experienced a daily gain of 14.22%, despite a 3-month loss of -5.25%. With a reported Loss Per Share of 0.7, the question arises: is the stock modestly undervalued? This article aims to answer this question through a detailed valuation analysis. Let's dive in.
Company Introduction
Evolent Health Inc is a key player in healthcare delivery and payment. The company supports health systems and physician organizations in their transition towards value-based care and population health management. With a current stock price of $27.43 and a GF Value of $37.47, Evolent Health (EVH, Financial) appears to be modestly undervalued. This article will provide an in-depth analysis of this valuation, integrating essential company details with financial assessment.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on our summary page provides a fair value estimate at which the stock should ideally trade. 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.
At its current price of $27.43 per share, Evolent Health has a market cap of $3.10 billion, suggesting that the stock is modestly undervalued. As such, the long-term return of its stock is likely to be higher than its business growth.
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Evaluating Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Therefore, it is crucial to carefully review the financial strength of a company before deciding to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Evolent Health has a cash-to-debt ratio of 0.21, which is worse than 70.23% of 655 companies in the Healthcare Providers & Services industry. GuruFocus ranks the overall financial strength of Evolent Health at 5 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Evolent Health has been profitable 2 over the past 10 years. Over the past twelve months, the company had a revenue of $1.60 billion and a Loss Per Share of $0.7. Its operating margin is -1.62%, which ranks worse than 63.83% of 658 companies in the Healthcare Providers & Services industry. Overall, the profitability of Evolent Health is ranked 3 out of 10, indicating poor profitability.
Growth is probably one of the most important factors in the valuation of a company. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Conversely, if a company's revenue and earnings are declining, the value of the company will decrease. Evolent Health's 3-year average revenue growth rate is better than 75.18% of 564 companies in the Healthcare Providers & Services industry. However, its 3-year average EBITDA growth rate is 0%, ranking worse than 0% of 513 companies in the same industry.
ROIC vs 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. Ideally, we want the return on invested capital to be higher than the weighted cost of capital. For the past 12 months, Evolent Health's return on invested capital is -0.53, and its cost of capital is 8.73.
Conclusion
In summary, the stock of Evolent Health (EVH, Financial) gives every indication of being modestly undervalued. The company's financial condition is fair, but its profitability is poor. Its growth ranks worse than 0% of 513 companies in the Healthcare Providers & Services industry. To learn more about Evolent Health stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
