SGFY Shares Move Closer to Their 52 Week High.

One of Wall Street's biggest winners today was Signify Health, a health information services company whose shares have climbed 32.1% to a price of $28.0 -- 5.88% above its average analyst target price of $26.45. The average analyst rating for the stock is buy. SGFY may have outstripped the S&P 500 index by 34.2% so far today, but it has lagged behind the index by 12.9% over the last year, returning -18.5%.

Signify Health is part of the healthcare sector, which includes the biotechnology, drug manufacturing, diagnostic and research, and medical supplies industries. Healthcare companies work in incredibly complex markets, and their valuations can change in an instant based on a denied drug approval, a research and development breakthrough at a competitor, or a new government regulation. In the longer term, healthcare companies are affected by factors as varied as demographics and epidemiology. Investors who want to understand the healthcare market should be prepared for deep dives into a wide range of topics.

As of the second quarter of 2022, the average Price to Earnings (P/E) ratio for US healthcare companies is 15.91, and the S&P 500 has an average of 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (Eps), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.

Signify health 's trailing 12 month P/E ratio is 121.8, based on its trailing Eps of $0.23. The company has a forward P/E ratio of 50.0 according to its forward Eps of $0.56 -- which is an estimate of what its earnings will look like in the next quarter.

Unlike earnings, gross profit margins only take into account the company's cost of goods sold (i.e. cost of labor and materials only). The extent of gross profit margins implies how much freedom the company has in setting the prices of its products. A wider gross profit margin indicates that a company may have a competitive advantage, as it is free to keep its product prices high relative to their cost. In SGFY's case, the gross profit margins are 48.6%, which indicates that it potentially benefits from a sustained competitive advantage over its peers, allowing it to maintain highly profitable pricing structures.

The revenues and earnings related to sales are only a part of the financial puzzle of large corporations, which have many costs and expenses arising independently from their core business: the cost of maintaining debt, rent payments, return on capital investments, depreciation, etc. When all of these separate cashflows are taken into account, we are left with the company's levered free cashflow, which for Signify Health is -$12,762,500. If it weren't negative, the unlevered free cashflow would represent the amount of money available for reinvestment in the business, or for payments to equity investors in the form of a dividend. While a negative cashflow for one or two quarters is not a sign of financial troubles for SGFY, a long term trend of negative or highly erratic cashflow levels may indicate a struggling business or a mismanaged company.

Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts. Signify health's P/B ratio of 6.1 indicates that the market value of the company exceeds its book value by a factor of 6, so the company's assets may be overvalued compared to the average P/B ratio of the Healthcare sector, which stands at 4.12 as of the second quarter of 2022.

Despite its excellent profit margins, Signify health is likely overvalued since it has a very high P/E ratio, an inflated P/B ratio, an analyst consensus of some upside potential, and negative cashflows. We hope you enjoyed this overview of SGFY's fundamentals. Before you reach your own decision, be sure to check the numbers for yourself, especially focusing on their trends over the last few years. And be sure to subscribe to our free newsletter for more updates on each day’s market movers!

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.