Value-focused investors continually seek stocks priced below their intrinsic value. One such stock that merits attention is My Size Inc (MYSZ, Financial). The stock, currently priced at $2.6, recorded a day's gain of 13.04% and a 3-month increase of 102.42%. Its fair valuation stands at $86.97, 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 is calculated based on historical multiples, GuruFocus adjustment factor, and future business performance estimates.
If the stock price significantly deviates from the GF Value Line, it indicates potential overvaluation or undervaluation, affecting its future return.
Identifying Potential Risks
Investors need to consider a more in-depth analysis before making an investment decision. Despite its seemingly attractive valuation, certain risk factors associated with My Size should not be ignored. These risks are primarily reflected through its low Altman Z-score of -13.13, and a Beneish M-Score of 5.84 that exceeds -1.78, the threshold for potential earnings manipulation. These indicators suggest that My Size, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Decoding Altman Z-score and Beneish M-Score
The Altman Z-score, developed by Professor Edward I. Altman, is a financial model that predicts the probability of a company entering bankruptcy within a two-year time frame. A score below 1.8 suggests a high likelihood of financial distress, while a score above 3 indicates a low risk.
Developed by Professor Messod Beneish, the Beneish M-Score is based on eight financial variables that reflect different aspects of a company's financial performance and position. A high M-Score may indicate potential earnings manipulation.
Company Snapshot
My Size Inc is a US-based technology company that focuses on the development of an application that assists consumers in accurately measuring their body for clothing fitting using a smartphone. The company generates its revenue through selling products to customers, and licensing cloud-enabled software subscriptions and associated software maintenance and support.
Dissecting My Size's Low Altman Z-Score
Analysis of My Size's Altman Z-score reveals potential financial distress. The company's Working Capital to Total Assets ratio has been declining over the past few years (2021: 0.90; 2022: 0.39; 2023: -0.09), suggesting potential liquidity issues. Moreover, a contraction in its Gross Margin over the past three years (2021: 0; 2022: 43.88; 2023: 4.75) could negatively impact the company's profitability.
Furthermore, an increase in the company's asset quality ratio over the past three years (2021: 0.01; 2022: 0.07; 2023: 0.38) might signal underlying issues, potentially misrepresenting the company's actual financial position. Lastly, a significant surge in revenue in the last 12 months, with a rise of 553.33%, could potentially signal aggressive income recognition or sales manipulation tactics.
Conclusion: A Potential Value Trap?
Despite the seemingly undervalued price, the financial indicators suggest that My Size might be a potential value trap. The low Altman Z-Score and high Beneish M-Score, coupled with declining working capital and gross margin, raise concerns about the company's financial health. Therefore, investors should exercise caution and conduct thorough due diligence before investing in My Size.
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