Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Loop Media Inc (LPTV, Financial). The stock, which is currently priced at 1.09, recorded a loss of 8.63% in a day and a 3-month decrease of 66.47%. The stock's fair valuation is $33.05, 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 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. 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.
Loop Media's Risk Factors
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 Loop Media should not be ignored. These risks are primarily reflected through its low Altman Z-score of -10.06. These indicators suggest that Loop Media, 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.
Company Introduction
Loop Media Inc is a streaming media company focused on premium short-form video. It offers music videos and film, game, and TV trailers which can be viewed in hospitality, dining, and retail venues, on leading branded media and entertainment sites, and on over-the-top TV platforms and IPTV devices.
Loop Media's Low Altman Z-Score: A Breakdown of Key Drivers
A dissection of Loop Media's Altman Z-score reveals Loop Media'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 Loop Media's historical data, 2021: -3.52; 2022: -4.51; 2023: -5.88, we observe a recent decline following an initial increase in this ratio. This downward movement indicates Loop Media's diminishing ability to reinvest in its business or effectively manage its debt. Consequently, it exerts a negative impact on its Z-Score.
The EBIT to Total Assets ratio serves as a crucial barometer of a company's operational effectiveness, correlating earnings before interest and taxes (EBIT) to total assets. An analysis of Loop Media's EBIT to Total Assets ratio from historical data (2021: -1.17; 2022: -1.46; 2023: -1.63) indicates a recent dip following an initial rise. This reduction suggests that Loop Media 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
Despite its seemingly attractive valuation, Loop Media (LPTV, Financial) might be a potential value trap due to its low Altman Z-score and declining ratios. Investors need to consider these risk factors 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 .
