Is Hanesbrands (HBI) Too Good to Be True? A Comprehensive Analysis of a Potential Value Trap

Unpacking the Risks and Rewards of Investing in Hanesbrands (HBI)

Article's Main Image

Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Hanesbrands Inc (HBI, Financial). The stock, currently priced at $4.61, recorded a loss of 3.05% in a day and a 3-month decrease of 0.11%. The stock's fair valuation is $13.56, 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. It is calculated based on historical multiples, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. 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.


Delving Deeper: The Risk Factors

Despite its seemingly attractive valuation, certain risk factors associated with Hanesbrands should not be ignored. These risks are primarily reflected through its low Piotroski F-score of 2 and Altman Z-score of 1.61. These indicators suggest that Hanesbrands, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.

Deciphering the Piotroski F-score and Altman Z-score

The Piotroski F-score is a tool used to assess the strength of a company's financial health. The score is based on nine criteria that fall into three categories: profitability, leverage/liquidity/ source of funds, and operating efficiency. The overall score ranges from 0 to 9, with higher scores indicating healthier financials. Hanesbrands's current Piotroski F-Score, however, falls in the lower end of this spectrum, indicating potential red flags for investors.

The Altman 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 Snapshot: Hanesbrands Inc (HBI, Financial)

Hanesbrands manufactures basic and athletic apparel under brands including Hanes, Champion, Playtex, Maidenform, Bali, Berlei, and Bonds. The company sells wholesale to discount, midmarket, and department store retailers as well as direct to consumers through stores and e-commerce. Hanesbrands is vertically integrated as it produces more than 70% of its products in company-controlled factories in more than three dozen nations. Hanesbrands distributes products in the Americas, Europe, and Asia-Pacific. The company was founded in 1901 and is based in Winston-Salem, North Carolina.


Analysis of Hanesbrands's' Profitability

One significant component of the F-Score is a positive return on assets (ROA). A closer look at Hanesbrands's ROA reveals a worrying trend of negative returns. This indicates the company's inability to generate profit from its assets - a fundamental concern for any investor.

Leverage, Liquidity and Source of Funds: A Worrying Trend

Assessing the aspect of leverage, liquidity, and sources of funds, Hanesbrands demonstrates an alarming rise in its debt-to-total assets ratio over the past three years. A higher debt ratio suggests that Hanesbrands is increasingly financing its assets through debt, thereby escalating its financial risk. The Piotroski F-Score views this as a negative indicator, further cautioning investors about Hanesbrands.


Operating Efficiency: A Darker Picture

Lastly, concerning operating efficiency, the Piotroski F-score examines changes in gross margin and asset turnover. Regrettably, Hanesbrands follows a discouraging trajectory with a decrease in gross margin percentage over the past three years. This contraction in gross margin suggests that Hanesbrands is grappling with either an escalation in the cost of goods sold or dwindling prices - both of which are inauspicious indicators for profitability.


While the Piotroski F-score is not the only lens through which to view a potential investment, it is a robust and comprehensive tool for evaluating a company's financial health. Unfortunately for Hanesbrands, its current score suggests potential troubles. Given these concerning signals, it appears that Hanesbrands may indeed be a value trap.

GuruFocus Premium members can find stocks with high Piotroski F-score using the following Screener: Piotroski F-score screener .
GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .


I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure