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

Unraveling the Intricacies of Viasat's Financial Health

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Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Viasat Inc (VSAT, Financial). The stock, which is currently priced at 15.96, recorded a loss of 5.39% in a day and a 3-month decrease of 61.3%. The stock's fair valuation is $40.29, 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:

  • 1. Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
  • 2. GuruFocus adjustment factor based on the company's past returns and growth.
  • 3. 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 Viasat should not be ignored. These risks are primarily reflected through its low Altman Z-score of 0.48, and a Beneish M-Score of -1.4 that exceeds -1.78, the threshold for potential earnings manipulation. These indicators suggest that Viasat, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.

Decoding the Altman Z-score and Beneish M-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.

Developed by Professor Messod Beneish, the Beneish M-Score is based on eight financial variables that reflect different aspects of a company's financial performance and position. These are Days Sales Outstanding (DSO), Gross Margin (GM), Total Long-term Assets Less Property, Plant and Equipment over Total Assets (TATA), change in Revenue (∆REV), change in Depreciation and Amortization (∆DA), change in Selling, General and Admin expenses (∆SGA), change in Debt-to-Asset Ratio (∆LVG), and Net Income Less Non-Operating Income and Cash Flow from Operations over Total Assets (∆NOATA).

Inside Viasat Inc (VSAT, Financial)

Viasat Inc provides bandwidth technologies and services in three segments: satellite services, which provides satellite-based high-speed broadband services to consumers, enterprises, and commercial airlines; commercial networks, which develops end-to-end communication and connectivity systems; and government systems, which produces network-centric Internet Protocol-based secure government communication systems. A large majority of the firm's revenue is generated in the United States, with the rest coming from the Americas, Europe, Middle East, Africa, and Asia-Pacific.


Assessing Viasat's Financial Health

A dissection of Viasat's Altman Z-score reveals Viasat's financial health may be weak, suggesting possible financial distress:

When it comes to operational efficiency, a vital indicator for Viasat is its asset turnover. The data: 2021: 0.38; 2022: 0.39; 2023: 0.30 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 Viasat's asset turnover underlines the need for the company to reassess its operational strategies to optimize asset usage and boost sales.

The days sales outstanding (DSO) is an important financial metric that denotes the average time a company takes to collect payment after a sale is completed. Looking at the historical data from the past three years (2021: 0.38; 2022: 0.39; 2023: 0.30), there appears to be a rising trend in Viasat's DSO.

An uptick in DSO might indicate aggressive revenue recognition practices, and in some cases, potential earnings manipulation. To explain, when DSO increases, it means the company's receivables are growing. This could be a result of sales being recorded before customers have paid, which inflates the revenue figures. In extreme cases, a company may even recognize revenue from sales that may never be collected, an action that is considered earnings manipulation. A rising DSO figure warrants scrutiny as it can signal financial distress or questionable accounting practices within the company. Therefore, investors should closely monitor such trends for early detection of any potential financial risks.

The Gross Margin index tracks the evolution of a company's gross profit as a proportion of its revenue. A downward trend could indicate issues such as overproduction or more generous credit terms, both of which are potential red flags for earnings manipulation. By examining the past three years of Viasat's historical data (2021: 30.71; 2022: 28.32; 2023: 28.88), we find that its Gross Margin has contracted by 1.17%. Such a contraction in the gross margin can negatively impact the company's profitability as it signifies lesser income from each dollar of sales. This could put a strain on the company's capacity to manage operating costs, potentially undermining its financial stability.

The asset quality ratio, calculated as Total Long-term Assets minus Property, Plant, and Equipment, divided by Total Assets, gauges the proportion of intangible or less tangible assets within a company's asset structure. Analyzing Viasat's asset quality ratio over the past three years (2021: 0.19; 2022: 0.18; 2023: 0.27), an increase might signal underlying issues, such as capitalizing normal operating expenses or goodwill impairment. These factors can inflate assets and mask true operational costs, potentially misrepresenting the company's actual financial position, and raising concerns for investors about its true value and risk profile.


The TATA (Total Accruals to Total Assets) ratio, calculated as the Net Income less Non-Operating Income and Cash Flow from Operations, divided by Total Assets, is a key indicator of the quality of a company's earnings. For Viasat, the current TATA ratio (TTM) stands at 0.033. A positive TATA ratio can be a warning sign, suggesting that the earnings are composed more of accruals rather than cash flow, which could be an indication of aggressive income recognition. Accrual accounting permits management some discretion in recognizing revenue and expenses, and a company intent on artificially boosting its earnings might exploit this flexibility.

In essence, a higher TATA ratio might mean that the company's reported income is not as firmly grounded in real cash earnings, signaling poor quality of earnings, potentially resulting from accounting gimmicks or financial engineering rather than true operational performance. Investors and analysts should examine the components of the TATA ratio closely, especially when the value is positive, to understand the underlying drivers and assess whether it might indicate a need for more detailed scrutiny of the company's financial practices.

Conclusion: Is Viasat a Value Trap?

Based on the analysis above, it appears that Viasat (VSAT, Financial) might indeed be a potential value trap. Despite its seemingly undervalued stock price, the company's financial indicators suggest potential financial distress and the possibility of earnings manipulation. Therefore, investors should exercise caution and conduct thorough due diligence before making an investment decision on Viasat.

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I/We may personally own shares in some of the companies mentioned above. However, those positions are not material to either the company or to my/our portfolios.