Standing out among the Street's worst performers today is Envista, a medical instruments & supplies company whose shares slumped -3.6% to a price of $29.38, 31.32% below its average analyst target price of $42.78.
The average analyst rating for the stock is buy. NVST lagged the S&P 500 index by -4.0% so far today and by -34.0% over the last year, returning -19.0%.
Envista Holdings Corporation, together with its subsidiaries, develops, manufactures, markets, and sells dental products in the United States, China, and internationally. The company is categorized within the healthcare sector. The catalysts that drive valuations in this sector are complex. From demographics, regulations, scientific breakthroughs, to the emergence of new diseases, healthcare companies see their prices swing on the basis of a variety of factors.
Envista's trailing 12 month P/E ratio is 23.3, based on its trailing EPS of $1.26. The company has a forward P/E ratio of 14.1 according to its forward EPS of $2.09 -- which is an estimate of what its earnings will look like in the next quarter. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the first quarter of 2023, the health care sector has an average P/E ratio of 24.45, and the average for the S&P 500 is 15.97.
It’s important to put the P/E ratio into context by dividing it by the company’s projected five-year growth rate. This results in the Price to Earnings Growth, or PEG ratio. Companies with comparatively high P/E ratios may still have a reasonable PEG ratio if their expected growth is strong. On the other hand, a company with low P/E ratios may not be of value to investors if it has low projected growth.
Envista's PEG ratio of 1.72 indicates that its P/E ratio is fair compared to its projected earnings growth. Insofar as its projected earnings growth rate turns out to be true, the company is probably fairly valued by this metric.
An analysis of the company's gross profit margins can help us understand its long term profitability and market position. Gross profits are the company's revenue minus the cost of goods only, and unlike earnings, don't take into account taxes and overhead. Here's an overview of Envista's gross profit margin trends:
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-16 | 2,569,100 | -1,094,300 | 56 | 0.0 |
| 2022-02-24 | 2,508,900 | -1,082,400 | 56 | 1.82 |
| 2021-02-19 | 1,929,100 | -874,300 | 55 | -6.78 |
| 2020-01-30 | 2,284,800 | -935,600 | 59 |
- Average gross margin: 56.5 %
- Average gross margin growth rate: 0.6 %
- Coefficient of variability (lower numbers indicating more stability): 3.1 %
We can see from the above that Envista business is not strong and its stock is likely not suitable for conservative investors.
To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in Envista's free cash flow, which was $255.1 Million as of its most recent annual report. Free cash flow represents the amount of money available for reinvestment in the business or for payments to equity investors in the form of a dividend. In NVST's case the cash flow outlook is weak. It's average cash flow over the last 4 years has been $364.95 Million and they've been growing at an average rate of 0.0%.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Envista's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 1.12, but is still below the average P/B ratio of the Health Care sector, which stood at 4.16 as of the first quarter of 2023.
Since it has an average P/E ratio, a lower P/B ratio than its sector average, and irregular cash flows with a flat trend, Envista is likely fairly valued at today's prices. The company has poor growth indicators because of a negative PEG ratio and weak operating margins with a positive growth rate. We hope you enjoyed this overview of NVST's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.
