The stock of Raffles Medical Group gives every indication of being fairly valued, 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 S$1.1 per share and the market cap of S$2.1 billion, Raffles Medical Group stock is believed to be fairly valued. GF Value for Raffles Medical Group is shown in the chart below.
Because Raffles Medical Group is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 5% over the past three years and is estimated to grow 6.24% annually over the next three to five years.
Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Raffles Medical Group has a cash-to-debt ratio of 0.99, which ranks in the middle range of the companies in the industry of Healthcare Providers & Services. Based on this, GuruFocus ranks Raffles Medical Group's financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of Raffles Medical Group over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Raffles Medical Group has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of S$568.2 million and earnings of S$0.036 a share. Its operating margin is 15.90%, which ranks better than 86% of the companies in the industry of Healthcare Providers & Services. Overall, GuruFocus ranks the profitability of Raffles Medical Group at 8 out of 10, which indicates strong profitability. This is the revenue and net income of Raffles Medical Group 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 Raffles Medical Group is 5%, which ranks in the middle range of the companies in the industry of Healthcare Providers & Services. The 3-year average EBITDA growth rate is 8%, which ranks in the middle range of the companies in the industry of Healthcare Providers & Services.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Raffles Medical Group's return on invested capital is 6.21, and its cost of capital is 6.34.
In short, the stock of Raffles Medical Group gives every indication of being fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in the industry of Healthcare Providers & Services. To learn more about Raffles Medical Group stock.