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- By GF Value

The stock of Dallah Healthcare Co (SAU:4004, 30-year Financials) gives every indication of being modestly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of SAR 66.9 per share and the market cap of SAR 6 billion, Dallah Healthcare Co stock is estimated to be modestly overvalued. GF Value for Dallah Healthcare Co is shown in the chart below.

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• 4004 15-Year Financial Data

• The intrinsic value of 4004

• Peter Lynch Chart of 4004

Because Dallah Healthcare Co is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 4.4% over the past five years.

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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Dallah Healthcare Co has a cash-to-debt ratio of 0.08, which ranks worse than 88% of the companies in the industry of Healthcare Providers & Services. Based on this, GuruFocus ranks Dallah Healthcare Co's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Dallah Healthcare Co over the past years:

Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Dallah Healthcare Co has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of SAR 1.5 billion and earnings of SAR 1.483 a share. Its operating margin of 11.51% better than 75% of the companies in the industry of Healthcare Providers & Services. Overall, GuruFocus ranks Dallah Healthcare Co's profitability as fair. This is the revenue and net income of Dallah Healthcare Co over the past years:

Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Dallah Healthcare Co is 4.4%, which ranks in the middle range of the companies in the industry of Healthcare Providers & Services. The 3-year average EBITDA growth rate is -12.6%, which ranks worse than 81% of the companies in the industry of Healthcare Providers & Services.

Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Dallah Healthcare Co's ROIC was 4.97, while its WACC came in at 6.66. The historical ROIC vs WACC comparison of Dallah Healthcare Co is shown below:

Overall, Dallah Healthcare Co (SAU:4004, 30-year Financials) stock gives every indication of being modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 81% of the companies in the industry of Healthcare Providers & Services. To learn more about Dallah Healthcare Co stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.