Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Tandem Diabetes Care Inc (TNDM, Financial). The stock, which is currently priced at $31.03, recorded a gain of 5.22% in a single day and a 3-month increase of 47.83%. The stock's fair valuation is $76.94, as indicated by its GF Value.
Understanding the GF Value
The GF Value is a unique metric representing the intrinsic value of a stock, based on a proprietary method. It incorporates historical trading multiples like PE, PS, and PB ratios, as well as price-to-free-cash-flow. It also includes a GuruFocus adjustment factor, which accounts for the company's past returns and growth, and it considers future business performance estimates. The GF Value Line suggests a fair trading value for the stock, with the expectation that the stock price will gravitate around this line.
If a stock price hovers significantly above the GF Value Line, it may be overvalued, and its future return could be disappointing. Conversely, if it is well below the GF Value Line, it may offer higher future returns. However, this is not a guarantee, as other factors must be considered.
Despite Tandem Diabetes Care's seemingly attractive valuation, there are risk factors that cannot be overlooked. These risks are reflected in its low Piotroski F-score of 2, and Altman Z-score of 1.33. These indicators suggest that Tandem Diabetes Care, despite its apparent undervaluation, might be a potential value trap, underlining the importance of thorough due diligence in investment decision-making.
Financial Health Indicators: Piotroski F-score and Altman Z-score
The Piotroski F-score is a measure of financial health, evaluating a company's profitability, leverage, liquidity, and operating efficiency. A low score, such as Tandem Diabetes Care's, indicates potential financial difficulties. The Altman Z-score, meanwhile, predicts the likelihood of bankruptcy, with a score below 1.8 suggesting high financial distress. Tandem Diabetes Care's score of 1.33 is a red flag, indicating it may be at risk of financial instability.
Snapshot of Tandem Diabetes Care
Tandem Diabetes Care designs, manufactures, and markets insulin pumps, with the t:slim X2 as its flagship product. The majority of revenue comes from the U.S., and the company has been operational since 2012. Despite a fair value estimation of $76.94, Tandem Diabetes Care's current stock price and financial indicators suggest that investors should proceed with caution.
Profitability Concerns
Tandem Diabetes Care's profitability is under scrutiny, with negative return on assets (ROA) indicating an inability to profit from its assets. The ROA has trended downwards in recent years, from 2.87% in 2021 to -21.09% in 2023. Additionally, the company's cash flow from operations is negative, while net income is substantially lower, indicating potential issues with earnings quality.
Leverage, Liquidity, and Sources of Funds
Examining leverage and liquidity, Tandem Diabetes Care's debt-to-total assets ratio has increased from 0.37 in 2021 to 0.45 in 2023, signaling higher financial risk. The company's current ratio has also decreased, suggesting potential difficulties in managing short-term financial obligations.
Operational Efficiency in Question
The company's operational efficiency is not promising, with an increase in diluted average shares outstanding and a decrease in gross margin percentage and asset turnover. These indicators suggest potential issues with value dilution and operational effectiveness, which could impact investor returns.
While the Piotroski F-score is just one tool to evaluate financial health, it paints a concerning picture for Tandem Diabetes Care. The company's low Altman Z-score also suggests financial distress, with declining ratios in retained earnings to total assets and EBIT to total assets.
When considering Tandem Diabetes Care as an investment, it's crucial to weigh the potential value against the risks identified by these financial health indicators. GuruFocus Premium members can use the Piotroski F-score screener and Walter Schloss Screen to find stocks with strong financial health.
Is Tandem Diabetes Care a smart investment or a value trap? The data suggests caution, as the company's financial indicators point towards potential instability. Investors should consider these warning signs before making a decision.
GuruFocus Premium members can find stocks with high Piotroski F-scores using the following Screener: Piotroski F-score screener.GuruFocus Premium members can find stocks with high Altman Z-Scores using the following Screener: Walter Schloss Screen.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
