The stock of Regional Health Properties (AMEX:RHE, 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 $3.92 per share and the market cap of $6.6 million, Regional Health Properties stock is believed to be significantly overvalued. GF Value for Regional Health Properties is shown in the chart below.
Because Regional Health Properties 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. Regional Health Properties has a cash-to-debt ratio of 0.05, which is in the bottom 10% of the companies in the industry of Healthcare Providers & Services. The overall financial strength of Regional Health Properties is 2 out of 10, which indicates that the financial strength of Regional Health Properties is poor. This is the debt and cash of Regional Health Properties 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. Regional Health Properties has been profitable 1 over the past 10 years. Over the past twelve months, the company had a revenue of $17.6 million and loss of $5.74 a share. Its operating margin is 13.05%, which ranks better than 81% of the companies in the industry of Healthcare Providers & Services. Overall, the profitability of Regional Health Properties is ranked 3 out of 10, which indicates poor profitability. This is the revenue and net income of Regional Health Properties 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 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. The 3-year average annual revenue growth rate of Regional Health Properties is -11.9%, which ranks worse than 86% of the companies in the industry of Healthcare Providers & Services. The 3-year average EBITDA growth rate is -19.4%, which ranks worse than 85% of the companies in the industry of Healthcare Providers & Services.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Regional Health Properties's ROIC is 1.97 while its WACC came in at 2.94. The historical ROIC vs WACC comparison of Regional Health Properties is shown below:
Overall, the stock of Regional Health Properties (AMEX:RHE, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks worse than 85% of the companies in the industry of Healthcare Providers & Services. To learn more about Regional Health Properties stock, you can check out its 30-year Financials here.
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