Psychemedics Corp Valuation – August 2016 $PMD

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – August 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Psychemedics Corp (PMD) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Psychemedics Corporation (Psychemedics) provides hair testing for drugs of abuse, utilizing a hair analysis method involving digestion of hair, enzyme immunoassay (EIA) technology and confirmation by mass spectrometry to analyze human hair to detect abused substances. The Company operates in drug testing services segment. The Company is in the business of performing drug testing and reporting the results thereof. The Company’s drug testing services include training for collection of samples and storage of positive samples for its customers for an agreed-upon fee per unit tested of samples. The Company’s primary application of its technology is as a testing service that analyzes hair samples for the presence of certain drugs of abuse. The Company’s tests provide information that indicates the approximate amount of drug ingested, as well as historical data, which shows a pattern of individual drug use over a longer period of time.

PMD Chart

PMD data by YCharts

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of PMD – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $118,430,907 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.00 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -20.70% Fail
6. Moderate PEmg Ratio PEmg < 20 44.22 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 9.91 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.00 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.83 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

PMD value chart August 2016

EPSmg $0.49
MG Growth Estimate -1.60%
MG Value $2.59
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $7.07
MG Value based on 0% Growth $4.14
Market Implied Growth Rate 17.86%
Current Price $21.55
% of Intrinsic Value 832.88%

Psychemedics Corp. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of earnings growth over the last five years. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $0.55 in 2012 to an estimated $0.49 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 17.86% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Psychemedics Corp. revealed the company was trading above its Graham Number of $4.82. The company pays a dividend of $0.6 per share, for a yield of 2.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 44.22, which was above the industry average of 40.07. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-0.41.

Psychemedics Corp. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

PMD charts August 2016

Net Current Asset Value (NCAV) -$0.41
Graham Number $4.82
PEmg 44.22
Current Ratio 2.00
PB Ratio 9.91
Current Dividend $0.60
Dividend Yield 2.78%
Number of Consecutive Years of Dividend Growth 0


Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $9,470,000
Total Current Liabilities $4,727,000
Long-Term Debt $3,920,000
Total Assets $23,543,000
Intangible Assets $0
Total Liabilities $11,688,000
Shares Outstanding (Diluted Average) 5,454,000

Earnings Per Share History

Next Fiscal Year Estimate $0.48
Dec2015 $0.28
Dec2014 $0.60
Dec2013 $0.72
Dec2012 $0.57
Dec2011 $0.67
Dec2010 $0.50
Dec2009 $0.29
Dec2008 $0.57
Dec2007 $0.85
Dec2006 $0.94
Dec2005 $0.78
Dec2004 $0.54
Dec2003 $0.23
Dec2002 $0.24
Dec2001 $0.04
Dec2000 $0.32
Dec1999 $0.44
Dec1998 $0.44
Dec1997 $0.44
Dec1996 $0.45

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.49
Dec2015 $0.52
Dec2014 $0.63
Dec2013 $0.61
Dec2012 $0.55
Dec2011 $0.55
Dec2010 $0.53
Dec2009 $0.60
Dec2008 $0.74
Dec2007 $0.78
Dec2006 $0.68
Dec2005 $0.48
Dec2004 $0.32
Dec2003 $0.22
Dec2002 $0.24
Dec2001 $0.27
Dec2000 $0.40

Recommended Reading:

Other ModernGraham posts about the company

Psychemedics Corp Stock Valuation – February 2016 $PMD
Psychemedics Corporation Valuation – November 2015 Update $PMD
Psychemedics Corp Stock Valuation – February 2016 $PMD
Psychemedics Corporation Valuation – November 2015 Update $PMD
Psychemedics Corporation Analysis – August 2015 Update $PMD

Other ModernGraham posts about related companies

Cerner Corporation Valuation – August 2016 $CERN
Stryker Corporation Valuation – August 2016 $SYK
Henry Schein Inc Valuation – July 2016 $HSIC
Quest Diagnostics Inc Valuation – July 2016 $DGX
Tenet Healthcare Corp Valuation – July 2016 $THC
Laboratory Corp of America Holdings Valuation – July 2016 $LH
Medtronic PLC Valuation – July 2016 $MDT
Intuitive Surgical Inc Valuation – July 2016 $ISRG
Cardinal Health Inc Valuation – July 2016 $CAH
PerkinElmer Inc Valuation – July 2016 $PKI


The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.