Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Charter Communications Inc (CHTR, Financial). The stock, which is currently priced at 372, recorded a loss of 9.65% in a day and a 3-month decrease of 7.22%. The stock's fair valuation is $795.71, as indicated by its GF Value.
Understanding 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 historical multiples, GuruFocus adjustment factor, and future estimates of the business performance.
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 Charter Communications (CHTR, Financial) should not be ignored. These risks are primarily reflected through its low Altman Z-score of 0.75. These indicators suggest that Charter Communications, 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.
Charter Communications: A Snapshot
Charter Communications is the product of the 2016 merger of three cable companies, each with a decades-long history in the business: Legacy Charter, Time Warner Cable, and Bright House Networks. The firm now holds networks capable of providing television, internet access, and phone services to roughly 56 million U.S. homes and businesses, around 40% of the country. Across this footprint, Charter serves 30 million residential and 2 million commercial customer accounts under the Spectrum brand, making it the second-largest U.S. cable company behind Comcast.
Charter Communications's Low Altman Z-Score: A Breakdown of Key Drivers
A dissection of Charter Communications's Altman Z-score reveals Charter Communications's financial health may be weak, suggesting possible financial distress. The Retained Earnings to Total Assets ratio provides insights into a company's capability to reinvest its profits or manage debt. Evaluating Charter Communications's historical data, 2021: -0.02; 2022: -0.07; 2023: -0.09, we observe a declining trend in this ratio. This downward movement indicates Charter Communications's diminishing ability to reinvest in its business or effectively manage its debt. Consequently, it exerts a negative impact on its Z-Score.
Conclusion
Despite the seemingly attractive valuation, the financial health of Charter Communications (CHTR, Financial) appears to be in jeopardy. The low Altman Z-score and the declining trend in the Retained Earnings to Total Assets ratio suggest potential financial distress, making Charter Communications a possible value trap. It is crucial for investors to conduct thorough due diligence before making investment decisions.
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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.
