Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Allegiant Travel Co (ALGT, Financial). The stock, which is currently priced at 74.49, recorded a loss of 4.7% in a day and a 3-month decrease of 38.16%. The stock's fair valuation is $217.25, 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.
Delving Deeper: Risks Associated with Allegiant Travel Co
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 Allegiant Travel Co should not be ignored. These risks are primarily reflected through its low Altman Z-score of 1.4, and These indicators suggest that Allegiant Travel Co, 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.
Allegiant Travel Co: A Snapshot
In this session, supply a succinct but thorough snapshot of the company's business operations and history, based on the 'Company Data'. Establish a comparison between the stock price and the GF Value, which is an estimation of fair value. This approach will efficiently pave the way for a more profound exploration of the company's value, ingeniously integrating financial assessment with essential company details.
Breakdown of Allegiant Travel Co's Low Altman Z-Score
A dissection of Allegiant Travel Co's Altman Z-score reveals Allegiant Travel Co'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 Allegiant Travel Co's historical data, 2021: 0.29; 2022: 0.26; 2023: 0.27, we observe a declining trend in this ratio. This downward movement indicates Allegiant Travel Co's diminishing ability to reinvest in its business or effectively manage its debt. Consequently, it exerts a negative impact on its Z-Score.
Conclusion: Allegiant Travel Co as a Possible Value Trap
Despite Allegiant Travel Co's seemingly attractive valuation, the company's low Altman Z-Score and declining Retained Earnings to Total Assets ratio suggest potential financial distress. These indicators, coupled with the company's performance, suggest that Allegiant Travel Co might be a value trap. As always, thorough due diligence is crucial before making any 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.
