What Is Going on With OPCH Shares?

Option Care Health (OPCH) stock climbed 3.89 % this morning. According to our metrics, the company seems overvalued at today's prices. At today's price of $31.76 per share, Option Care Health is -18.21% away from its target price of $38.83, and on average, analysts give the stock a rating of strong buy.3% of the company's shares are linked to short positions, and 84% of the shares are owned by institutional investors.

Option Care Health, Inc. offers infusion services at home and at alternative sites in the United States. The mid-cap Health Care company is based in Bannockburn, United States.

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

Compared to the Health Care sector's average of 24.45, Option Care Health has a trailing twelve month price to earnings (P/E) ratio of 40.2 and an expected P/E ratio of 28.11. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $0.79 or forward earnings per share of $1.13.

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 Option Care Health's P/E ratio is higher than its sector average of 24.45, we can deduce that the market is overvaluing the company's earnings.

OPCH Has an Average P/B Ratio

Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.

Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For Option Care Health, the P/B value is 4.324 while the average for the Health Care sector is 4.16.

Investors Stand to Gain from OPCH's Cash Flows

Option Care Health has strong cash flows. With a coefficient of variability of 98% and an average growth rate of 322.62%, the company is effectively turning its revenue into cash. We calculate Option Care Health's free cash flows by subtracting capital expenditures (long term investments in the business) from its total cash flows from operations. The table below shows us that capital expenditures are evolving at a 7.19% rate, versus 75.27% for operating expenses:

Date Reported Cash Flow from Operations (k) Capital Expenditures (k) Free Cash Flow (k) YoY Growth
2022-12-31 $267,547 $35,358 $232,189 26.92%
2021-12-31 $208,569 $25,632 $182,937 82.0%
2020-12-31 $127,392 $26,875 $100,517 799.48%
2019-12-31 $39,467 $28,292 $11,175 704.71%
2018-12-31 $24,428 $26,276 -$1,848 n/a

Option Care Health Is Not a Profitable Business

If you are looking to make OPCH a long term investment, its weak margins may give you cause for concern. As you can see from the below, the company is generally losing money on each sale it makes. That being said, stock prices in the short term can be independent of a company's margins, and Option Care Health's management may be able to make the business profitable in the future.

Option Care Health's Gross Margins

Date Reported Revenue (k) Cost of Revenue (k) Gross Margin YoY Growth
2022-12-31 $3,890,929 $3,676,839 22.28% -4.01%
2021-12-31 $3,358,250 $3,217,641 23.21% -0.9%
2020-12-31 $2,913,295 $2,885,645 23.42% 5.26%
2019-12-31 $2,305,574 $2,283,146 22.25% -53.2%
2018-12-31 $888,080 $465,865 47.54% n/a

Option Care Health's Operating Margins

Date Reported Revenue (k) Operating Expenses (k) Operating Margin YoY Growth
2022-12-31 $3,890,929 $626,687 6.17% 8.63%
2021-12-31 $3,358,250 $588,765 5.68% 49.47%
2020-12-31 $2,913,295 $571,509 3.8% 38100.0%
2019-12-31 $2,305,574 $513,318 -0.01% -100.23%
2018-12-31 $888,080 $383,946 4.31% n/a

Option Care Health's cost of revenue is growing at a rate of 88% in contrast to 10.9% for operating expenses. Sales revenues, on the other hand, have experienced a 43.42% growth rate. As a result, the average gross margins growth is -10.57 and the average operating margins growth rate is 7611.57, with coefficients of variability of 40% and 61% respectively.

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.