Do Analysts Know Something We Don't About agilon health inc. (AGL)?

It's been a strong day for agilon health inc.. Its shares are now trading at $23.04, marking a 9.22% change since the previous market close. An analyst favorite, the Health Services company has a rating of buy. But could the market and the analyst community be overvaluing this stock?

The first step in determining whether a stock is overvalued is to check its price to book (P/B) ratio. This is perhaps the most basic measure of a company's valuation, which is its market value divided by its book value. Here, took value refers to the sum of all of the company's assets minus its liabilities -- you can also think of it as the company's equity value.

Traditionally, value investors would look for companies with a ratio of less than 1 (meaning that the market value was smaller than the company's book value), but such opportunities are somewhat rare these days. So we tend to look for company's whose valuations are less than their sector and market average. The P/B ratio for agilon health inc. is 6.57, compared to its sector average of 2.08 and the S&P 500's average P/B of 2.95.

Modernly, the most common metric for valuing a company is its Price to Earnings (P/E) ratio. It's simply today's stock price of 23.04 divided by either its trailing or forward earnings, which for agilon health inc. are $-0.26 and $0.22 respectively. Based on these values, the company's trailing P/E ratio is -88.6 and its forward P/E ratio is 104.7. By way of comparison, the average P/E ratio of the Basic Materials sector is 10.03 and the average P/E ratio of the S&P 500 is 15.97.

Investors are undoubtedly attracted by agilon health inc.'s dividend of $0.0%. But can the company keep up these payments? Dividends are paid out from levered free cash flow, which is the money left over after the company has accounted for all expenses and income -- including those unrelated to its core business. In agilon health inc.'s case, the cash flows are negative which calls into question the firm's ability to sustain its dividends.

Shares of agilon health inc. appear to be overvalued at today's prices — despite the positive outlook from analysts. But sometimes stocks with inflated valuations turn out to be strong performances for years, and even decades, such as Amazon. So be sure to do your own due diligence if you are interested in taking a long position in AGL.

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.