HealthEquity Inc (HQY, Financial) has recently experienced a daily gain of 2.28%, alongside a three-month gain of 12.07%, reflecting a positive trend in its market performance. With an Earnings Per Share (EPS) of $0.64, investors are keen to understand whether the stock is fairly valued. This article delves into the valuation analysis of HealthEquity, aiming to provide a comprehensive understanding of its current market position and intrinsic value.
Company Introduction
HealthEquity Inc provides a suite of solutions to empower consumers in their healthcare saving and spending decisions. The company's services range from payment processing to investment advice for health savings accounts (HSAs) and other consumer-directed benefits. With a market cap of $6.90 billion and a stock price of $80.4, it's crucial to evaluate how HealthEquity's current trading value compares to its estimated fair value, known as the GF Value, which stands at $78.1. This comparison is foundational in gauging the stock's valuation in the market.
Summarize GF Value
The GF Value is an exclusive metric that represents the intrinsic value of a stock, integrating historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. This value suggests the fair trading price of a stock. When a stock trades significantly above this line, it's considered overvalued, and when below, it could signal higher future returns. HealthEquity (HQY, Financial) is currently deemed fairly valued, aligning closely with the GF Value Line. This suggests that its long-term stock return may closely mirror the company's business growth rate.
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Financial Strength
Investing in companies with robust financial strength is critical to avoid permanent capital loss. HealthEquity's cash-to-debt ratio of 0.43 places it in a fair position relative to 59.11% of peers in the Healthcare Providers & Services industry. This leads to a financial strength rating of 6 out of 10 by GuruFocus, indicating a reasonable balance sheet.
Profitability and Growth
Profitability is a less risky indicator when investing, especially with consistent performance over time. HealthEquity has maintained profitability for 8 out of the past 10 years. With a revenue of $999.60 million and an Earnings Per Share (EPS) of $0.64, it boasts an operating margin of 12.82%, outperforming 77.38% of its industry counterparts. The company's strong profitability is reflected in its rank of 8 out of 10.
Company growth is a pivotal valuation factor, with research showing a close correlation with long-term stock performance. HealthEquity's 3-year average annual revenue growth rate of 5.8% ranks it in the middle of its industry, while its EBITDA growth rate of 16.8% is more competitive, indicating potential for creating shareholder value.
ROIC vs WACC
Assessing Return on Invested Capital (ROIC) against the Weighted Average Cost of Capital (WACC) is another method to evaluate profitability. HealthEquity's ROIC of 3.48 is slightly below its WACC of 3.93, suggesting the company must improve its efficiency in generating cash flow relative to its invested capital to create more value for shareholders.
Conclusion
In conclusion, HealthEquity's stock appears to be fairly valued, with a solid financial condition and strong profitability. Its growth prospects are promising, ranking favorably within the Healthcare Providers & Services industry. For a detailed exploration of HealthEquity's financials, interested investors can view the company's 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.
