NeoGenomics Stock Is Believed To Be Significantly Overvalued

GuruFocus.com
·4 min read

- By GF Value

The stock of NeoGenomics (NAS:NEO, 30-year Financials) shows every sign of being 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 $46.38 per share and the market cap of $5.4 billion, NeoGenomics stock appears to be significantly overvalued. GF Value for NeoGenomics is shown in the chart below.


NeoGenomics Stock Is Believed To Be Significantly Overvalued
NeoGenomics Stock Is Believed To Be Significantly Overvalued

Because NeoGenomics is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 9.5% over the past three years and is estimated to grow 12.74% annually over the next three to five years.

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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. NeoGenomics has a cash-to-debt ratio of 1.35, which which ranks in the middle range of the companies in the industry of Medical Diagnostics & Research. The overall financial strength of NeoGenomics is 5 out of 10, which indicates that the financial strength of NeoGenomics is fair. This is the debt and cash of NeoGenomics over the past years:

NeoGenomics Stock Is Believed To Be Significantly Overvalued
NeoGenomics Stock Is Believed To Be Significantly Overvalued

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. NeoGenomics has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $444.4 million and earnings of $0.02 a share. Its operating margin is -3.15%, which ranks in the middle range of the companies in the industry of Medical Diagnostics & Research. Overall, the profitability of NeoGenomics is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of NeoGenomics over the past years:

NeoGenomics Stock Is Believed To Be Significantly Overvalued
NeoGenomics Stock Is Believed To Be Significantly Overvalued

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 NeoGenomics is 9.5%, which ranks in the middle range of the companies in the industry of Medical Diagnostics & Research. The 3-year average EBITDA growth rate is -7.1%, which ranks worse than 75% of the companies in the industry of Medical Diagnostics & Research.

Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, NeoGenomics's ROIC was 0.68, while its WACC came in at 6.73. The historical ROIC vs WACC comparison of NeoGenomics is shown below:

NeoGenomics Stock Is Believed To Be Significantly Overvalued
NeoGenomics Stock Is Believed To Be Significantly Overvalued

In closing, NeoGenomics (NAS:NEO, 30-year Financials) stock shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 75% of the companies in the industry of Medical Diagnostics & Research. To learn more about NeoGenomics stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.