Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Brookfield Renewable Partners LP (BEP, Financial). The stock, which is currently priced at 20.34, recorded a loss of 3.92% in a day and a 3-month decrease of 28.5%. The stock's fair valuation is $41.05, as indicated by its GF Value.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
- 1. Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
- 2. GuruFocus adjustment factor based on the company's past returns and growth.
- 3. Future estimates of the business performance.
We believe the GF Value Line is the fair value that the stock should be traded at. The stock price will most likely fluctuate around the GF Value Line. If the stock price 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.
Unveiling the Potential Risks
However, investors need to consider a more in-depth analysis before making an investment decision. Despite its seemingly attractive valuation, certain risk factors associated with Brookfield Renewable Partners LP should not be ignored. These risks are primarily reflected through its low Altman Z-score of 0.25. These indicators suggest that Brookfield Renewable Partners LP, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Decoding the Altman Z-Score
Before delving into the details, let's understand what the Altman Z-score entails. Invented by New York University Professor Edward I. Altman in 1968, the Z-Score is a financial model that predicts the probability of a company entering bankruptcy within a two-year time frame. The Altman Z-Score combines five different financial ratios, each weighted to create a final score. A score below 1.8 suggests a high likelihood of financial distress, while a score above 3 indicates a low risk.
A Snapshot of Brookfield Renewable Partners LP
Brookfield Renewable is a globally diversified, multitechnology owner and operator of clean energy assets. The company's portfolio consists of hydroelectric, wind, solar, and storage facilities in North America, South America, Europe, and Asia, and totals over 20 gigawatts of installed capacity. Brookfield Renewable invests in assets directly, as well as with institutional partners, joint venture partners, and through other arrangements.
Dissecting BEP's Low Altman Z-Score
A dissection of Brookfield Renewable Partners LP's Altman Z-score reveals Brookfield Renewable Partners LP's financial health may be weak, suggesting possible financial distress:
Concluding Thoughts
Despite Brookfield Renewable Partners LP's attractive valuation, its low Altman Z-Score and other risk factors suggest it might be a potential value trap. This underscores the importance of thorough due diligence before making an investment decision. GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
