The stock of Allscripts Healthcare Solutions (NAS:MDRX, 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 $16.14 per share and the market cap of $2.3 billion, Allscripts Healthcare Solutions stock is estimated to be significantly overvalued. GF Value for Allscripts Healthcare Solutions is shown in the chart below.
Because Allscripts Healthcare Solutions is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 4.4% over the past 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. Allscripts Healthcare Solutions has a cash-to-debt ratio of 1.88, which which ranks in the middle range of the companies in the industry of Healthcare Providers & Services. The overall financial strength of Allscripts Healthcare Solutions is 5 out of 10, which indicates that the financial strength of Allscripts Healthcare Solutions is fair. This is the debt and cash of Allscripts Healthcare Solutions 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. Allscripts Healthcare Solutions has been profitable 3 over the past 10 years. Over the past twelve months, the company had a revenue of $1.5 billion and earnings of $4.393 a share. Its operating margin is -3.72%, which ranks worse than 69% of the companies in the industry of Healthcare Providers & Services. Overall, the profitability of Allscripts Healthcare Solutions is ranked 3 out of 10, which indicates poor profitability. This is the revenue and net income of Allscripts Healthcare Solutions over the past years:
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Allscripts Healthcare Solutions's 3-year average revenue growth rate is in the middle range of the companies in the industry of Healthcare Providers & Services. Allscripts Healthcare Solutions's 3-year average EBITDA growth rate is 183.3%, which ranks better than 100% of the companies in the industry of Healthcare Providers & Services.
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, Allscripts Healthcare Solutions ROIC was -1.67, while its WACC came in at 7.22. The historical ROIC vs WACC comparison of Allscripts Healthcare Solutions is shown below:
Overall, the stock of Allscripts Healthcare Solutions (NAS:MDRX) shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 100% of the companies in the industry of Healthcare Providers & Services.