It's Time For a Deep Dive Into Masimo (MASI)

Shares of Masimo (MASI) were up 2.5 % during today's afternoon session, which brings their 52 week performance to -40.0%. The Market Inference outlook on this stock is that it is overvalued at today's price of $157.21.

Masimo Corporation develops, manufactures, and markets noninvasive monitoring technologies and hospital automation solutions worldwide. The mid-cap Healthcare company has 2,200 full time employees and is based in Irvine, United States.

MASI Has a Higher P/E Ratio Than the Sector Average

Compared to the Healthcare sector's average of 13.21, Masimo has a trailing twelve month price to earnings (P/E) ratio of 51.9 and an expected P/E ratio of 35.8. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $3.03 or forward earnings per share of $4.39.

Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Masimo's P/E ratio is higher than its sector average of 13.21, we can deduce that the market is overvaluing the company's earnings.

Masimo Is Overvalued in Terms of Expected Growth

Masimo's PEG ratio is 2.86. This metric represents the company's earnings per share divided by its expected growth ratio, and is a useful complement to the price to earnings analysis, because it factors in growth to the valuation. A PEG ratio around or below 1 implies that the market in fairly valuing the company in terms of its growth estimates. But when the PEG ratio is higher, as in Masimo's case, it tells us the company is overvalued.

MASI Has an Alarming P/B Ratio

The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.

Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since Masimo's P/B ratio of 6.6 is higher than its sector average of 4.07, such a margin of safety does not exist for the stock.

MASI Is Generating Cash

Masimo has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of 10.3%, compared to -23.0% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of 31.6% and a coefficient of variability of 30.9%:

Date Reported Cash Flow from Operations ($ MM) Capital expenditures ($ MM) Free Cash Flow ($ MM) YoY Growth (%)
2021-12-31 265 -35 230 75.43
2020-12-31 211 -80 131 -12.16
2019-12-31 222 -72 149 n/a

Masimo's Margins Are Strong

If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Masimo's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.

Masimo's Gross Margins

Date Reported Revenue ($ MM) Cost of Revenue ($ MM) Gross Margins (%) YoY Growth (%)
2021-12-31 1,239 431 65.23 0.4
2020-12-31 1,144 401 64.97 -3.16
2019-12-31 938 309 67.09 n/a

Masimo's Operating Margins

Date Reported Total Revenue ($ MM) Operating Expenses ($ MM) Operating Margins (%) YoY Growth (%)
2021-12-31 1,239 533 22.26 -0.31
2020-12-31 1,144 488 22.33 -5.34
2019-12-31 938 408 23.59 n/a

Masimo's cost of revenue is growing at a rate of 18.7% in contrast to 14.4% for operating expenses. Sales revenues, on the other hand, have experienced a 15.2% growth rate. As a result, the average gross margins growth is -1.4 and the average operating margins growth rate is -2.8, with coefficients of variability of 1.8% and 3.3% respectively.

Masimo Benefits From Positive Market Signals

The market sentiment regarding Masimo is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $180 to $135. MASI is trading -4.89% away from its target price of $165.29. 5.1% of the company's shares are tied to short positions, and 90.4% of the shares are held by institutional investors.

Holder Shares Date Reported Percentage Value
Blackrock Inc. 5,414,824 2022-09-29 10% $851,264,517
Politan Capital Management Lp 4,648,869 2022-09-29 9% $730,848,726
Vanguard Group, Inc. (The) 4,628,062 2022-09-29 9% $727,577,658
FMR, LLC 3,857,290 2022-09-29 7% $606,404,586
State Street Corporation 1,657,148 2022-09-29 3% $260,520,248
RTW Investments LP 1,439,993 2022-09-29 3% $226,381,309
Liontrust Investment Partners LLP 1,142,100 2022-09-29 2% $179,549,548
Champlain Investment Partners, LLC 934,762 2022-09-29 2% $146,953,940
Fundsmith LLP 765,161 2022-09-29 1% $120,290,965
Goldman Sachs Group Inc 728,634 2022-09-29 1% $114,548,556
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.