Value-focused investors are perpetually on the lookout for stocks priced below their intrinsic value. Enlight Renewable Energy Ltd (ENLT, Financial) is one such stock that demands attention. Currently priced at 13.17, the stock recorded a 7.86% gain in a day, despite a 3-month decrease of 29.27%. The stock's fair valuation, according to its GF Value, is $32.68.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock, derived from an exclusive methodology. The GF Value Line provides an overview of the fair value at which the stock should be traded. It is calculated based on historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance.
If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
However, Enlight Renewable Energy's seemingly attractive valuation may conceal certain risk factors. These risks are primarily reflected through its low Altman Z-score of 0.53. These indicators suggest that Enlight Renewable Energy, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
An Overview of the Altman Z-Score
The Altman Z-score is a financial model that predicts the probability of a company entering bankruptcy within a two-year time frame. Invented by New York University Professor Edward I. Altman in 1968, the 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.
Introducing Enlight Renewable Energy
Enlight Renewable Energy Ltd is a green energy company specializing in the initiation, development, financing, construction, management, and operation of electricity production projects from renewable energy sources. It also provides installation services. The company generates the majority of its revenue from its Photovoltaic business in Israel and Eastern Europe.
Dissecting Enlight Renewable Energy's Low Altman Z-Score
Enlight Renewable Energy's low Altman Z-score of 0.53 suggests possible financial distress. The Retained Earnings to Total Assets ratio, which provides insights into a company's ability to reinvest its profits or manage debt, has shown a recent decline following an initial increase. This downward movement indicates Enlight Renewable Energy's diminishing ability to reinvest in its business or effectively manage its debt, negatively impacting its Z-Score.
The EBIT to Total Assets ratio, a crucial barometer of a company's operational effectiveness, has also shown a recent dip following an initial rise. This reduction suggests that Enlight Renewable Energy might not be utilizing its assets to their full potential to generate operational profits, which could be negatively affecting the company's overall Z-score.
Conclusion: Navigating the Value Trap
Despite its seemingly undervalued status, Enlight Renewable Energy's low Altman Z-Score and declining ratios indicate potential financial distress, suggesting that it might be a value trap. Therefore, investors should conduct 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.
