HealthEquity Inc (HQY, Financial) has recently experienced a daily loss of -3.12% and a 3-month decline of -3.84%. Despite these figures, the company's Earnings Per Share (EPS) (EPS) stands at $0.34. Investors are often faced with the question: is HealthEquity's stock modestly undervalued? This article delves into the valuation analysis of HealthEquity, exploring whether the current market price reflects the company's true intrinsic value, as suggested by the GF Value.
Company Introduction
HealthEquity Inc provides a comprehensive range of solutions that empower consumers to make informed healthcare saving and spending decisions. Its innovative technology platform offers visibility into tax-advantaged healthcare savings, treatment options comparison, healthcare bill payments, benefits information, and wellness incentives. The company primarily collaborates with health plans and employers, managing health savings accounts (HSAs) for its customers. Moreover, HealthEquity extends its services to include reimbursement arrangements, healthcare incentives, and investment advisory for eligible customers. Generating its revenue within the United States, HealthEquity has a current market cap of $5.80 billion and a GF Value of $75.25, indicating the stock may be modestly undervalued.
Summarize GF Value
The GF Value is a proprietary measure that reflects the intrinsic value of a stock. It is calculated by considering historical trading multiples such as PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow, an adjustment factor based on the company's past performance, and analyst estimates of future business performance. When a stock's price aligns closely with the GF Value Line, it is considered to be trading at its fair value. HealthEquity's stock, with its current price of $67.71 per share and a market cap of $5.80 billion, appears to be modestly undervalued according to the GF Value. This suggests that the long-term return on HealthEquity's stock could potentially outpace its business growth.
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Financial Strength
Investors must examine a company's financial strength to avoid the risk of permanent capital loss. HealthEquity's cash-to-debt ratio is 0.36, which is lower than the industry median, placing it in a less favorable position compared to 63% of its peers in the Healthcare Providers & Services industry. GuruFocus ranks HealthEquity's financial strength as 6 out of 10, indicating a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent performance, is generally less risky. HealthEquity has shown profitability 8 out of the past 10 years, with a revenue of $971 million and an EPS of $0.34 over the last twelve months. Its operating margin of 10.84% is commendable, ranking better than 72.92% of its industry peers. The company's profitability is ranked 9 out of 10, reflecting strong performance. In terms of growth, HealthEquity's average annual revenue growth is 9.5%, which is competitive within its industry. However, its 3-year average EBITDA growth rate of 4.1% is somewhat lackluster, ranking lower than 59.45% of its counterparts in the Healthcare Providers & Services industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) offers insight into its value creation. HealthEquity's ROIC of 2.46% is slightly lower than its WACC of 2.8%, suggesting that the company may not be generating sufficient returns on its investments. This comparison is a critical aspect of assessing the company's profitability and potential for long-term value creation.
Conclusion
In summary, HealthEquity (HQY, Financial) appears to be modestly undervalued based on the GF Value. The company maintains a fair financial condition, robust profitability, and a competitive position within its industry. However, its growth and value creation metrics indicate areas for improvement. For a more detailed understanding of HealthEquity's financial health, investors can review its 30-Year Financials here.
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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.
