Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Sunrun Inc (RUN, Financial). The stock, which is currently priced at $14.38, recorded a loss of 4.52% in a day and a 3-month decrease of 25.67%. The stock's fair valuation is $43.6, 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: 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.
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 Sunrun should not be ignored. These risks are primarily reflected through its low Altman Z-score of 0.22. These indicators suggest that Sunrun, 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 Overview: Sunrun Inc (RUN, Financial)
Sunrun is engaged in the design, development, installation, sale, ownership, and maintenance of residential solar energy systems in the United States. The company acquires customers directly and through relationships with various solar and strategic partners. The solar systems are either constructed by Sunrun or by its partners and are owned by the company. Sunrun's customers typically enter into 20- to 25-year agreements to utilize its solar energy system.
Dissecting Sunrun's Low Altman Z-Score
A dissection of Sunrun's Altman Z-score reveals Sunrun's financial health may be weak, suggesting possible financial distress:
Conclusion: Sunrun as a Potential Value Trap
In conclusion, while Sunrun's seemingly undervalued stock price may be attractive, its low Altman Z-Score and other risk factors suggest that it might be a potential value trap. Therefore, investors should exercise caution and conduct thorough due diligence before making any investment decisions.
GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
