- By GF Value
The stock of Meridian Bioscience (NAS:VIVO, 30-year Financials) is believed to be modestly 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 $27.15 per share and the market cap of $1.2 billion, Meridian Bioscience stock appears to be modestly overvalued. GF Value for Meridian Bioscience is shown in the chart below.
Warning! GuruFocus has detected 6 Warning Signs with VIVO. Click here to check it out.
VIVO 15-Year Financial Data
The intrinsic value of VIVO
Peter Lynch Chart of VIVO
Because Meridian Bioscience is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 7.6% over the past three years and is estimated to grow 12.31% annually over the next three to five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Meridian Bioscience has a cash-to-debt ratio of 0.97, which ranks in the middle range of the companies in the industry of Medical Diagnostics & Research. Based on this, GuruFocus ranks Meridian Bioscience's financial strength as 7 out of 10, suggesting fair balance sheet. This is the debt and cash of Meridian Bioscience 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. Meridian Bioscience has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $299.2 million and earnings of $1.62 a share. Its operating margin is 29.84%, which ranks better than 90% of the companies in the industry of Medical Diagnostics & Research. Overall, GuruFocus ranks the profitability of Meridian Bioscience at 8 out of 10, which indicates strong profitability. This is the revenue and net income of Meridian Bioscience 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. Meridian Bioscience's 3-year average revenue growth rate is in the middle range of the companies in the industry of Medical Diagnostics & Research. Meridian Bioscience's 3-year average EBITDA growth rate is 17.3%, which ranks in the middle range of the companies in the industry of Medical Diagnostics & Research.
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, Meridian Bioscience's return on invested capital is 23.21, and its cost of capital is 4.78. The historical ROIC vs WACC comparison of Meridian Bioscience is shown below:
In short, the stock of Meridian Bioscience (NAS:VIVO, 30-year Financials) appears to be modestly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in the industry of Medical Diagnostics & Research. To learn more about Meridian Bioscience stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.