Is Tandem Diabetes Care (TNDM) Now Fairly Priced After Years Of Share Price Weakness

• If you are wondering whether Tandem Diabetes Care's share price still reflects its true worth, you are not alone. The stock has drawn attention from investors who are trying to work out if the current level makes sense.
• The shares last closed at US$23.54, with recent returns of 4.6% over 7 days, 12.5% over 30 days and 9.2% year to date, set against a 36.5% decline over 1 year, a 47.0% decline over 3 years, and a 74.7% decline over 5 years.
• Recent attention on Tandem Diabetes Care has been shaped by ongoing product and sector updates, as well as changing sentiment toward diabetes technologies more broadly. This backdrop helps explain why short term moves can look very different from the longer term track record.
• On Simply Wall St's valuation checks, Tandem Diabetes Care scores 3 out of 6, as shown in the valuation score. Next, we will walk through the main valuation approaches used to assess the stock while also pointing to a more complete way to think about value at the end of the article.

Find out why Tandem Diabetes Care's -36.5% return over the last year is lagging behind its peers.

Approach 1: Tandem Diabetes Care Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model takes estimates of a company’s future cash flows and discounts them back to today’s dollars, aiming to estimate what the whole business might be worth right now.

For Tandem Diabetes Care, the model uses a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is a loss of about $50.3 million. Analysts provide free cash flow estimates for the next few years, and Simply Wall St extends those into longer term projections. Within the ten year view, projected free cash flow moves into positive territory, with estimates such as $80.6 million in 2026 and $96.0 million in 2028, all expressed in dollars and then discounted back to today.

When all those discounted cash flows are added up, the model arrives at an estimated intrinsic value of about $22.62 per share, compared with the recent price of $23.54. That implies the shares are around 4.1% overvalued on this DCF view, which is a relatively small gap.

Result: ABOUT RIGHT

Tandem Diabetes Care is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

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

Approach 2: Tandem Diabetes Care Price vs Sales

For companies where profits are limited or volatile, the P/S ratio is often more useful than P/E because it anchors valuation to revenue rather than earnings. Investors still care about growth and risk though, since faster growth or lower risk can justify paying a higher normal or fair P/S multiple compared with slower growth or higher risk businesses.

Tandem Diabetes Care currently trades on a P/S ratio of about 1.58x. That sits below the Medical Equipment industry average P/S of 3.12x and also below the peer average of 2.72x. On the surface, this suggests the market is valuing Tandem’s sales at a lower level than many comparable companies.

Simply Wall St’s Fair Ratio for Tandem Diabetes Care is 1.88x. This is a proprietary estimate of what the P/S ratio might be given the company’s earnings growth profile, profit margins, industry, market cap and specific risks. Because it blends these company specific factors, the Fair Ratio can be a more tailored guide than a simple comparison with peers or the broad industry. With the current P/S of 1.58x sitting below the 1.88x Fair Ratio, the shares screen as undervalued on this metric.

Result: UNDERVALUED

P/S ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1450 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Tandem Diabetes Care Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simple stories you create about Tandem Diabetes Care that link your view of its business drivers and risks to specific revenue, earnings and margin forecasts. These forecasts translate into a fair value you can compare with the current price to decide whether it looks attractive or expensive. They update automatically when new news or earnings are added on Simply Wall St’s Community page, and can differ meaningfully between investors. For example, one Narrative might lean closer to a fair value of about US$11.00 per share and another closer to US$51.00, reflecting very different expectations about how future competition in the pump market, recurring supply revenues, pharmacy and international channels, and profitability might develop.

Do you think there's more to the story for Tandem Diabetes Care? 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.

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