Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Guardant Health Inc (GH, Financial). The stock, which is currently priced at $23.67, recorded a loss of 9.81% in a day and a 3-month decrease of 35.76%. The stock's fair valuation is $68.13, 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 historical multiples such as PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line is a benchmark, suggesting that a stock price will likely fluctuate around it. Significantly above, the stock may be overvalued with poor future returns; significantly below, it indicates a higher potential return.
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 Guardant Health should not be ignored. These risks are primarily reflected through its low Altman Z-score of -0.08, suggesting that Guardant Health, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Decoding Financial Health Indicators
The Piotroski F-score is a tool used to assess the strength of a company's financial health. Guardant Health's current Piotroski F-Score is on the lower end, indicating potential red flags for investors. Meanwhile, the Altman Z-score predicts the probability of a company entering bankruptcy within a two-year time frame. A score below 1.8 suggests a high likelihood of financial distress, whereas a score above 3 indicates a low risk.
Snapshots of Guardant Health's Business
Guardant Health Inc, based in Redwood City, California, is a leader in liquid-based cancer tests for clinical and research use. The company offers a range of diagnostic tests and has recently expanded its offerings with the launch of Reveal for molecular residual disease and Shield for colorectal cancer screening. The juxtaposition of the stock price against the GF Value, an estimation of fair value, sets the stage for a deeper exploration of the company's value proposition.
Guardant Health's Low Altman Z-Score: A Breakdown of Key Drivers
A dissection of Guardant Health's Altman Z-score reveals a weakening financial health, suggesting possible financial distress. The Retained Earnings to Total Assets ratio has been declining over the past years (2021: -0.41; 2022: -0.90; 2023: -1.09), indicating a diminishing ability to reinvest in its business or manage debt. Additionally, the EBIT to Total Assets ratio also shows a descending trend (2021: -0.18; 2022: -0.34; 2023: -0.24), suggesting that Guardant Health might not be utilizing its assets effectively to generate operational profits.
Concluding Insights: Is Guardant Health a Value Trap?
Guardant Health's low Piotroski F-score and Altman Z-score, along with its declining financial ratios, point toward a potential value trap. While the stock appears undervalued based on the GF Value, the underlying financial health metrics signal caution. Investors considering Guardant Health must weigh these risks against the potential rewards and conduct thorough research before making an investment decision.
GuruFocus Premium members can find stocks with high Piotroski F-score using the following Screener: Piotroski F-score screener. Additionally, those looking for stocks with high Altman Z-Score can use the Walter Schloss Screen: Walter Schloss Screen.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
