Does Globus Medical’s Strategic Acquisitions Signal a Good Entry After Shares Drop 25%?

• Wondering if Globus Medical is actually a bargain, or if its price tag is just as hefty as it looks? You are not alone, and it may be a good time to look more closely at the details.
• The stock has seen a mild 2.2% uptick over the past month, but it is still down roughly 25% over the last year. This signals some shifting investor sentiment and possible opportunity.
• Recently, headlines have highlighted strategic acquisitions and the expansion of Globus Medical's portfolio in spinal and musculoskeletal solutions. These developments have fueled both excitement and debate among investors. They are shaping market expectations and may help explain recent price fluctuations.
• When it comes to valuation, Globus Medical scores a 3 out of 6 on our checklist of undervalued factors, which you can explore in detail here. This article will examine the numbers using several valuation methods, and includes additional insights on how to approach assessing value at the end.

Find out why Globus Medical's -25.6% return over the last year is lagging behind its peers.

Approach 1: Globus Medical Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's value by forecasting its future cash flows and then discounting them back to today's dollars. This approach helps assess what the business is intrinsically worth based on its ability to generate cash in the years ahead.

For Globus Medical, the latest twelve months' free cash flow stands at $534 million. Analysts expect cash flows to gradually decrease, projecting $99.9 million in 2026. Over the next ten years, annual free cash flow projections fall from just under $100 million, with continued modest declines, based on analyst estimates for the next few years. After that, further projections are extrapolated by Simply Wall St.

According to the DCF model, these cash flows translate to an estimated intrinsic value of $11.50 per share. When compared to the current share price, this implies that Globus Medical’s stock is trading at a significant premium. This signals it is approximately 434.8% overvalued by this method.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Globus Medical may be overvalued by 434.8%. Discover 843 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Globus Medical.

Approach 2: Globus Medical Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used metric for valuing profitable companies like Globus Medical because it directly connects the company’s share price to its earnings. For businesses that generate consistent profits, the PE ratio provides an intuitive snapshot of how much investors are willing to pay for each dollar of earnings.

It is important to note that what counts as a “fair” PE ratio depends on several factors, including future growth expectations and the level of risk. Higher growth or lower risk tends to justify a higher multiple. Conversely, companies with tepid growth or elevated risk usually command a lower multiple.

Globus Medical currently trades at a PE ratio of 23.3x. This sits noticeably below the industry average for Medical Equipment companies, which is 29.0x, and is well beneath the average of close-listed peers at 57.1x. However, simple comparisons like this can be misleading because companies differ in terms of growth prospects, profitability, and risk profiles.

This is where Simply Wall St’s “Fair Ratio” comes in. The Fair Ratio reflects the unique qualities of Globus Medical, including its expected earnings growth, profit margins, risk factors, industry classification, and market cap. By capturing a more nuanced picture, it offers a more tailored gauge than broad industry or peer averages.

For Globus Medical, the Fair Ratio stands at 23.4x. With the company currently trading at 23.3x, their market valuation is closely aligned with this fair value benchmark.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1406 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Globus Medical Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let’s introduce you to Narratives. A Narrative is your personal story or outlook for a company. It is your take on how its business, industry trends, and financial numbers fit together, allowing you to estimate what you believe is a fair value based on your own forecasts of future revenue, earnings, and margins.

Narratives link the company’s unique story to a financial forecast and ultimately to a fair value, giving you a clear picture of why a stock might be considered for purchase or for holding. They are easy to build and update using Simply Wall St’s Community page, where millions of investors already share and refine their views.

By helping you compare your Fair Value directly to the current price, Narratives simplify the question of whether to act. If your fair value is above today’s price, it might be a buy; if not, you may hold back. Narratives are dynamically refreshed as soon as new news, earnings, or key developments occur, so your analysis stays relevant in real time.

For example, some users see Globus Medical’s innovation in robotics and margin recovery driving a fair value above $106 per share. Others, who are more cautious about integration risks and slowing sales cycles, calculate a fair value as low as $65. Narratives help you turn these perspectives into actionable investment decisions, making your process smarter and more tailored to you.

Do you think there's more to the story for Globus Medical? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com