Standing out among the Street's worst performers today is Globus Medical, a medical instruments & supplies company whose shares slumped -6.9% to a price of $52.47, 38.4% below its average analyst target price of $85.17.
The average analyst rating for the stock is buy. GMED lagged the S&P 500 index by -7.0% so far today and by -36.4% over the last year, returning -23.3%.
Globus Medical, Inc., a medical device company, develops and commercializes healthcare solutions for patients with musculoskeletal disorders in the United States 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.
Globus Medical's trailing 12 month P/E ratio is 39.2, based on its trailing EPS of $1.34. The company has a forward P/E ratio of 14.2 according to its forward EPS of $3.42 -- which is an estimate of what its earnings will look like in the next quarter. As of the third quarter of 2024, the average Price to Earnings (P/E) ratio for US health care companies is 22.94, and the S&P 500 has an average of 29.3. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Globus Medical was $405.21 Million as of its last annual report. This represents the amount of money that is available for reinvesting in the business, or for paying out to investors in the form of a dividend. With its strong cash flows, GMED is in a position to do either -- which can encourage more investors to place their capital in the company. Over the last four years, the company's free cash flow has been growing at a rate of 27.9% and has on average been $188.43 Million.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts). Globus medical's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 1.74, but is still below the average P/B ratio of the Health Care sector, which stood at 3.19 as of the third quarter of 2024.
Since it has a higher P/E ratio than its sector average, a lower P/B ratio than its sector average, and generally positive cash flows with an upwards trend, Globus Medical is likely undervalued at today's prices. The company has poor growth indicators because of an inflated PEG ratio and weak operating margins with a negative growth trend. We hope you enjoyed this overview of GMED's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.
