Yahoo Finance Simulations Plus Stock Is Estimated To Be Significantly Overvalued
- By GF Value
The stock of Simulations Plus (NAS:SLP, 30-year Financials) is estimated 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 $63.98 per share and the market cap of $1.3 billion, Simulations Plus stock shows every sign of being significantly overvalued. GF Value for Simulations Plus is shown in the chart below.
Because Simulations Plus is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 17.6% over the past five years.
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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. Simulations Plus has a cash-to-debt ratio of 154.04, which is better than 90% of the companies in the industry of Healthcare Providers & Services. The overall financial strength of Simulations Plus is 7 out of 10, which indicates that the financial strength of Simulations Plus is fair. This is the debt and cash of Simulations Plus 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. Simulations Plus has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $42.9 million and earnings of $0.51 a share. Its operating margin is 27.83%, which ranks better than 95% of the companies in the industry of Healthcare Providers & Services. Overall, GuruFocus ranks the profitability of Simulations Plus at 9 out of 10, which indicates strong profitability. This is the revenue and net income of Simulations Plus over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Simulations Plus is 17.6%, which ranks better than 81% of the companies in the industry of Healthcare Providers & Services. The 3-year average EBITDA growth rate is 9.7%, which ranks in the middle range of the companies in the industry of Healthcare Providers & Services.
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, Simulations Plus's return on invested capital is 22.92, and its cost of capital is 0.72. The historical ROIC vs WACC comparison of Simulations Plus is shown below:
In conclusion, Simulations Plus (NAS:SLP, 30-year Financials) stock appears to be significantly 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 Healthcare Providers & Services. To learn more about Simulations Plus stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
