With a daily loss of -3.59%, a 3-month loss of -29.89%, and an Earnings Per Share (EPS) of 0.89, the question arises: Is Insulet Corp (PODD, Financial) significantly undervalued? This article delves deep into the valuation analysis of Insulet (PODD), providing valuable insights for potential investors.
Company Overview
Founded in 2000, Insulet Corp (PODD, Financial) aimed to simplify continuous subcutaneous insulin infusion therapy for diabetes. The result was the Omnipod system, a small disposable insulin infusion device that can be operated through a smartphone to control dosage. Since its approval by the U.S. Food and Drug Administration in 2005, approximately 360,000 insulin-dependent diabetics worldwide have adopted the Omnipod system. With a current stock price of $225.28, compared to the estimated fair value of $356.46, Insulet presents an intriguing case for value investors.
Understanding the GF Value
The GF Value is an exclusive measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value that the stock should ideally be traded at. If the stock price is significantly above the GF Value Line, the stock may be overvalued, and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, the stock may be undervalued, and its future return will likely be higher.
Insulet's Valuation
Based on GuruFocus' valuation method, Insulet (PODD, Financial) appears to be significantly undervalued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $225.28 per share, Insulet stock shows every sign of being significantly undervalued. As a result, the long-term return of its stock is likely to be much higher than its business growth.
Insulet's Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. It is crucial to review a company's financial strength before deciding whether to buy its stock. A look at the cash-to-debt ratio and interest coverage can provide a good understanding of a company's financial strength. Insulet's cash-to-debt ratio of 0.46 is worse than 78.45% of companies in the Medical Devices & Instruments industry. GuruFocus ranks Insulet's overall financial strength at 5 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies carries less risk, especially those 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. Insulet has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $1.50 billion and Earnings Per Share (EPS) of $0.89. Its operating margin of 5.82% is better than 51.82% of companies in the Medical Devices & Instruments industry. Overall, GuruFocus ranks Insulet's profitability as fair.
Growth is a crucial factor 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. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. Insulet's 3-year average annual revenue growth rate is16.4%, which ranks better than 70.82% of companies in the Medical Devices & Instruments industry. However, its 3-year average EBITDA growth rate is 8.1%, which ranks worse than 51.8% of companies in the same industry.
ROIC vs WACC
Another way to determine a company's profitability is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The 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, Insulet's ROIC is 5.68, and its WACC is 8.92.
Conclusion
In conclusion, Insulet Corp (PODD, Financial) appears to be significantly undervalued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 51.8% of companies in the Medical Devices & Instruments industry. To learn more about Insulet stock, you can check out its 30-Year Financials here.
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