After reviewing the data, it is clear that conservative value investors may wish to seek other opportunities. The Defensive Investor is concerned with the low current ratio in combination with the lack of dividend payments and high PEmg and PB ratios, while the Enterprising Investor has concerns with the low current ratio and lack of dividend payments. As a result, both investor types would find the company to be too risky to proceed. That said, any investors willing to speculate about the future of the company may go ahead with the next step of the analysis, which is a determination of the company’s intrinsic value.
When calculating an estimate of intrinsic value, it is important to consider the historical earnings results along with the market’s implied estimate for future growth. Here, the company has grown its EPSmg (normalized earnings) from $1.96 in 2010 to only an estimated $2.42 for 2014. This level of demonstrated growth is in stark contrast to the market’s implied estimate of 74.66%. In fact, historical growth has only been 4.79% in recent years. There would have to be an incredible increase in the company’s growth in order to be worth the current market pricing, and such a growth rate would be unsustainable over a 7-10 year period. As a result, the company appears to be significantly overvalued at the present time.
Be sure to check out previous ModernGraham valuations of Netflix Inc. for better perspective!
Disclaimer: The author did not hold a position in Danaher Corporation (DHR) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.