Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Newell Brands Inc (NWL, Financial). The stock, which is currently priced at $10.19, recorded a loss of 4.86% in a day and a 3-month increase of 18.66%. The stock's fair valuation is $17.79, as indicated by its GF Value.
The GF Value: A Comprehensive Tool for Stock Valuation
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: historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and 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.
Unpacking the Risks: Newell Brands (NWL, Financial) as a Potential Value Trap
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 Newell Brands should not be ignored. These risks are primarily reflected through its low Altman Z-score of 0.69. These indicators suggest that Newell Brands, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Understanding 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.
Inside Newell Brands Inc (NWL, Financial)
Newell Brands Inc is an American global consumer goods company. The business activities of the group function through five segments namely, Commercial Solutions, Home Appliances, Home Solutions, Learning and Development, Outdoor and Recreation. The learning and Development segment generates most of the revenue for the firm which offers baby gear and infant care products; writing instruments, including markers and highlighters, pens and pencils; art products; activity-based adhesive and cutting products, and labeling solutions.
Newell Brands's Low Altman Z-Score: A Breakdown of Key Drivers
A dissection of Newell Brands's Altman Z-score reveals Newell Brands's financial health may be weak, suggesting possible financial distress.
Conclusion: Newell Brands (NWL, Financial) - A Potential Value Trap?
Despite the attractive valuation, the low Altman Z-Score and declining financial health suggest that Newell Brands could potentially be a value trap. Investors should exercise caution and 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 .
