The stock of Asensus Surgical (AMEX:ASXC, 30-year Financials) appears to be 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 $3.08 per share and the market cap of $718.3 million, Asensus Surgical stock is believed to be significantly overvalued. GF Value for Asensus Surgical is shown in the chart below.
Because Asensus Surgical 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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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Asensus Surgical has a cash-to-debt ratio of 25.60, which is better than 74% of the companies in the industry of Medical Devices & Instruments. The overall financial strength of Asensus Surgical is 7 out of 10, which indicates that the financial strength of Asensus Surgical is fair. This is the debt and cash of Asensus Surgical over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Asensus Surgical has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $4.7 million and loss of $0.63 a share. Its operating margin is -1213.37%, which ranks in the bottom 10% of the companies in the industry of Medical Devices & Instruments. Overall, the profitability of Asensus Surgical is ranked 1 out of 10, which indicates poor profitability. This is the revenue and net income of Asensus Surgical 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. Asensus Surgical’s 3-year average revenue growth rate is in the bottom 10% of the companies in the industry of Medical Devices & Instruments. Asensus Surgical’s 3-year average EBITDA growth rate is 61.7%, which ranks better than 90% of the companies in the industry of Medical Devices & Instruments.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Asensus Surgical’s return on invested capital is -103.97, and its cost of capital is 10.66.
In closing, Asensus Surgical (AMEX:ASXC, 30-year Financials) stock gives every indication of being significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 90% of the companies in the industry of Medical Devices & Instruments. To learn more about Asensus Surgical stock, you can check out its 30-year Financials here.
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