Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is DISH Network Corp (DISH, Financial). The stock, currently priced at 5.72, recorded a loss of 7.44% in a day and a 3-month decrease of 4.82%. The stock's fair valuation is $27.58, 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 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.
- 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.
Unpacking the Risks: DISH Network's Low Altman Z-Score
Investors need to consider a more in-depth analysis before making an investment decision. Despite its seemingly attractive valuation, certain risk factors associated with DISH Network (DISH, Financial) should not be ignored. These risks are primarily reflected through its low Altman Z-score of 0.81. These indicators suggest that DISH Network, 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.
This is the income breakdown of DISH Network:
Key Drivers Behind DISH Network's Low Altman Z-Score
A dissection of DISH Network's Altman Z-score reveals DISH Network's financial health may be weak, suggesting possible financial distress:
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 DISH Network's EBIT to Total Assets ratio from historical data (2021: 0.09; 2022: 0.06; 2023: 0.05) indicates a descending trend. This reduction suggests that DISH Network 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.
When it comes to operational efficiency, a vital indicator for DISH Network is its asset turnover. The data: 2021: 0.49; 2022: 0.38; 2023: 0.31 from the past three years suggests a decreasing trend in this ratio. The asset turnover ratio reflects how effectively a company is using its assets to generate sales. Therefore, a drop in this ratio can signify reduced operational efficiency, potentially due to underutilization of assets or decreased market demand for the company's products or services. This shift in DISH Network's asset turnover underlines the need for the company to reassess its operational strategies to optimize asset usage and boost sales.
Conclusion: DISH Network, A Potential Value Trap?
Despite the apparent undervaluation of DISH Network (DISH, Financial), the company's financial health and operational efficiency indicators suggest potential risks. The low Altman Z-score and the declining EBIT to Total Assets ratio, coupled with the decreasing asset turnover, point towards possible financial distress. Therefore, while DISH Network may seem like a bargain, it could very well be a value trap. Investors should conduct thorough due diligence and consider these risk factors before making an investment decision.
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