Does Medigus Generate Enough Profit to Be Opportunity?

Medigus (MDGS) shares moved 2.3% this morning, bringing their 52 week performance to -63.9%. While the stock is undervalued by some metrics, its lack of profitability requires a closer look. Medigus Ltd., a technology-based company, provides medical-related devices and products in the United States, Europe, China, Israel, and internationally. The small-cap Healthcare company has 26 full time employees and is based in Tel Aviv, Israel. Medigus has not offered any dividends in the last year.

Medigus Is Overvalued Compared to its Earnings

Compared to the Healthcare sector's average of 13.21, Medigus has a trailing twelve month price to earnings (P/E) ratio of 34.2 based on its trailing 12 month earnings per share of $0.21.

The Company Is Undervalued in terms of Its Assets

Medigus's price to book (P/B) ratio is only 0.3 compared to the sector average of 4.07. Its current ratio (current assets / current liabilities) is 4.8. Current assets refer to company assets that can be transferred into cash within one year, such as accounts receivable, inventory, and liquid financial instruments. Current liabilities, on the other hand, refer to those that will come due within one year.

The Quick Ratio, or Acid Test, is the company's current assets minus its inventory and prepaid expenses divided by its current liabilities. Medigus's quick ratio is 1.302. Generally speaking, a quick ratio above 1 signifies that the company is able to meet its liabilities.

Medigus Trades Close to Its Intrinsic Value

The Graham number of Medigus (22.5 x earnings per share x book value per share)is $11.41, compared to the stock’s market price of $7.19. Medigus’s current market price is -36.9% below its market price, which implies that there is upside potential -- even for a conservative investors who require a significant margin of safety.

Medigus Has Negative Cash Flows

Date Reported Cash Flow from Operations ($) Capital expenditures ($) Free Cash Flow ($) YoY Growth (%)
2021-12-31 -5,250,000.0 -141,000.0 -5,391,000.0 16.64
2020-12-31 -6,143,000.0 -324,000.0 -6,467,000.0 -134.57
2019-12-31 -2,695,000.0 -62,000.0 -2,757,000.0 34.87
2018-12-31 -4,222,000.0 -11,000.0 -4,233,000.0 n/a

Medigus has a regular stream of negative cash flows. With a coefficient of variability of 33.8% and an average growth rate of -27.7%. The table above shows us that capital expenditures are evolving at a 276.6% rate with a variability of 102.0%, versus -25.7% and 32.3% for cash flows from operations. Furthermore, retained earnings have averaged $-73,576,500.00 over the last 4 years.

MDGS Is Not Profitable

Date Reported Revenue ($) Cost of Revenue ($) Gross Margins (%) YoY Growth (%)
2021-12-31 10,118,000.0 5,317,000.0 47.45 150.09
2020-12-31 531,000.0 1,034,000.0 -94.73 -42.09
2019-12-31 273,000.0 455,000.0 -66.67 -69.99
2018-12-31 436,000.0 607,000.0 -39.22 n/a

Medigus's cost of revenue is growing at an average rate of 521.8% with variability of 130.0% compared to 620.9% and 170.9% for its revenues. As a result, the company's average operating margin is -38.3% with an average growth rate of 12.7% and a variability of 160.6%.

Date Reported Total Revenue ($) Operating Expenses ($) Operating Margins (%) YoY Growth (%)
2021-12-31 10,118,000.0 18,314,000.0 -81 94.24
2020-12-31 531,000.0 7,996,000.0 -1405.84 8.58
2019-12-31 273,000.0 4,471,000.0 -1537.73 -0.49
2018-12-31 436,000.0 7,108,000.0 -1530.28 n/a

Medigus's operating expenses are evolving at an average rate of 56.9% with variability of 64.2% compared to 620.9% and 170.9% for its revenues. As a result, the company's average operating margin is -1138.7% with an average growth rate of 34.1% and a variability of 62.2%.

In conclusion, most conservative investors will avoid Medigus because of its lack of profitability and negative cash flows. More aggressive investors will be attracted by its low P/B ratio and the fact that the company trades close to its Graham number. Furthermore, its low debt levels will enable it to benefit from the growth of its various business ventures -- assuming they come to fruition.

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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.