- By GF Value
The stock of T2 Biosystems (NAS:TTOO, 30-year Financials) gives every indication of being modestly undervalued, 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 $1.305 per share and the market cap of $193.8 million, T2 Biosystems stock is believed to be modestly undervalued. GF Value for T2 Biosystems is shown in the chart below.
Because T2 Biosystems is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 0.9% over the past three years and is estimated to grow 30.18% annually over the next three to five years.
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. T2 Biosystems has a cash-to-debt ratio of 0.74, which which ranks worse than 67% of the companies in the industry of Medical Diagnostics & Research. The overall financial strength of T2 Biosystems is 2 out of 10, which indicates that the financial strength of T2 Biosystems is poor. This is the debt and cash of T2 Biosystems over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. T2 Biosystems has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $18.1 million and loss of $0.45 a share. Its operating margin is -228.11%, which ranks worse than 82% of the companies in the industry of Medical Diagnostics & Research. Overall, the profitability of T2 Biosystems is ranked 2 out of 10, which indicates poor profitability. This is the revenue and net income of T2 Biosystems 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 T2 Biosystems is 0.9%, which ranks in the middle range of the companies in the industry of Medical Diagnostics & Research. The 3-year average EBITDA growth rate is 41.6%, which ranks better than 85% 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, T2 Biosystems's return on invested capital is -113.70, and its cost of capital is 5.78. The historical ROIC vs WACC comparison of T2 Biosystems is shown below:
In conclusion, the stock of T2 Biosystems (NAS:TTOO, 30-year Financials) is estimated to be modestly undervalued. The company's financial condition is poor and its profitability is poor. Its growth ranks better than 85% of the companies in the industry of Medical Diagnostics & Research. To learn more about T2 Biosystems stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.