Value-focused investors are constantly seeking stocks priced below their intrinsic value. One such stock that warrants attention is Ameresco Inc (AMRC, Financial). The stock, currently priced at $35.41, recorded a loss of 8.17% in a day and a 3-month decrease of 27.31%. The stock's fair value, as indicated by its GF Value, is $59.31. However, despite its seemingly attractive valuation, certain risk factors associated with Ameresco should not be overlooked. These risks, primarily reflected through its low Altman Z-score of 1.43, suggest that Ameresco, despite its apparent undervaluation, might be a potential value trap.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our unique 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 three factors: historical multiples 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. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Delving into the Altman Z-score
Before proceeding, 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.
A Closer Look at Ameresco Inc (AMRC, Financial)
Ameresco Inc provides energy efficiency solutions for facilities in North America and Europe. It focuses on projects that reduce energy, also focuses on the operation and maintenance costs of governmental, educational, utility, healthcare, and other institutional, commercial, and industrial entities facilities. Ameresco distributes solar energy products and systems, such as PV panels, solar regulators, solar charge controllers, inverters, solar-powered lighting systems, solar-powered water pumps, solar panel mounting hardware, and other system components.
Dissecting Ameresco's Low Altman Z-Score
A dissection of Ameresco's Altman Z-score reveals potential financial distress. The Retained Earnings to Total Assets ratio provides insights into a company's capability to reinvest its profits or manage debt. Evaluating Ameresco's historical data, 2021: 0.20; 2022: 0.17; 2023: 0.18, we observe a declining trend in this ratio. This downward movement indicates Ameresco's diminishing ability to reinvest in its business or effectively manage its debt, exerting a negative impact on its Z-Score.
Conclusion: A Potential Value Trap?
Despite its apparent undervaluation, Ameresco's low Altman Z-Score and declining Retained Earnings to Total Assets ratio suggest that it might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making. GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
