Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Ameresco Inc (AMRC, Financial). The stock, which is currently priced at $27.15, recorded a gain of 20.61% in a day and a 3-month decrease of 46.91%. The stock's fair valuation is $51.58, 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 provides an overview of the fair value at which the stock should be traded. It considers historical trading multiples, an adjustment factor based on past returns and growth, and future business performance estimates. The stock price typically fluctuates around the GF Value Line, and deviations from it can indicate overvaluation or undervaluation, impacting the expected future return.
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 Ameresco should not be ignored. These risks are primarily reflected through its low Piotroski F-score of 2, Altman Z-score of 0.99, and a Beneish M-score above -1.6. These indicators suggest that Ameresco, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Decoding Financial Health Scores
The Piotroski F-score is a tool used to assess a company's financial health. Ameresco's low score indicates potential red flags for investors. The Altman Z-score predicts bankruptcy likelihood, and Ameresco's score below 1.8 suggests a high risk of financial distress. These scores, along with the Beneish M-score, which identifies earnings manipulation, provide a comprehensive view of Ameresco's financial stability.
A Closer Look at Ameresco Inc (AMRC, Financial)
Ameresco Inc provides energy efficiency solutions in North America and Europe, focusing on reducing energy and maintenance costs for various institutions. Despite a market cap of $1.40 billion and sales of $1.30 billion, Ameresco's low operating margin of 5.67% and ROIC of 3.98%, coupled with a high WACC of 10.78%, raise concerns about its profitability and financial efficiency.
Analyzing Ameresco's Profitability
Ameresco's declining ROA percentages over the past three years—from 3.61% in 2021 to 1.52% in 2023—signal a potential risk. This trend, coupled with a significant discrepancy between cash flow from operations and net income, raises questions about the quality of Ameresco's earnings and its ability to sustain operations.
Leverage, Liquidity, and Source of Funds: A Worrying Trend
Ameresco's rising debt-to-total assets ratio, from 0.23% in 2021 to 0.43% in 2023, indicates increased reliance on debt financing and higher financial risk. This trend, along with a decreasing current ratio, suggests a deterioration in Ameresco's liquidity and ability to meet short-term obligations.
Operating Efficiency: A Darker Picture
The increase in Ameresco's diluted average shares outstanding over the past three years hints at potential shareholder value dilution. Moreover, a declining asset turnover ratio, from 0.61% in 2021 to 0.41% in 2023, points to reduced operational efficiency.
While the Piotroski F-score alone is not exhaustive, it is a strong indicator of financial health. Ameresco's low score, combined with other concerning financial signals, suggests potential troubles ahead.
Ameresco's Low Altman Z-Score: A Breakdown of Key Drivers
A declining Retained Earnings to Total Assets ratio from 0.21% in 2021 to 0.16% in 2023 reflects Ameresco's reduced ability to reinvest profits or manage debt, negatively impacting its Altman Z-score and hinting at possible financial distress.
Conclusion: Ameresco's Value Trap Indicators
Ameresco's low Piotroski F-score, Altman Z-score, and concerning financial trends suggest it may be a value trap. Investors should exercise caution and conduct thorough due diligence before considering an investment in Ameresco. For those seeking to identify stocks with robust financial health, GuruFocus Premium members can access specialized screeners for high Piotroski F-scores and high Altman Z-scores, offering valuable resources for informed 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.
