Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Spirit Airlines Inc (SAVE, Financial). The stock, which is currently priced at $11.20, recorded a gain of 12.56% in a day and a 3-month decrease of 28.3%. The stock's fair valuation is $35.13, as indicated by its GF Value.
Understanding 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, adjusted for the company's past returns and growth, and incorporates future estimates of business performance.
Our analysis suggests that the GF Value Line represents a fair trade value, with stock prices likely fluctuating around this line. When a stock price significantly exceeds the GF Value Line, it may be overvalued, indicating a poor future return. Conversely, a price well below the line suggests 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 Spirit Airlines should not be ignored. These risks are primarily reflected through its low Altman Z-score of 0.49, suggesting that Spirit Airlines, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Financial Health Indicators
The Piotroski F-score is a tool used to assess a company's financial health. A low score indicates potential red flags for investors. Spirit Airlines's current Piotroski F-Score is at the lower end of the spectrum. The Altman Z-score, another critical financial model, predicts the likelihood of bankruptcy. A score below 1.8 suggests a high risk of financial distress, which is the case for Spirit Airlines.
Company Overview
Spirit Airlines Inc serves the United States, Latin America, and the Caribbean as an airline operator. It offers unbundled base fares, allowing customers to pay for only the travel amenities they need. The company's simple fleet structure allows for interchangeable flight crews, simplified maintenance, and support services. Spirit Airlines has one operating segment, air transportation, and may expand its network if a market is underserved or overpriced. With the majority of revenue derived from the United States, the company's financial status is a crucial aspect of its valuation.
Spirit Airlines's Low Altman Z-Score: A Breakdown of Key Drivers
A closer look at Spirit Airlines's financials reveals a concerning trend. The Retained Earnings to Total Assets ratio has been declining over the past years: 2021: 0.13, 2022: 0.09, 2023: 0.03. This trend suggests a diminishing ability for Spirit Airlines to reinvest in its business or manage its debt effectively, which negatively impacts its Altman Z-Score and signals potential financial distress.
Conclusion
The combination of a low Piotroski F-score, an alarming Altman Z-score, and a downward trend in the Retained Earnings to Total Assets ratio suggests that Spirit Airlines (SAVE, Financial) might indeed be a value trap. While its current stock price appears attractive compared to the GF Value, the underlying financial health of the company paints a different picture. Investors should approach Spirit Airlines with caution and conduct comprehensive due diligence. GuruFocus Premium members can use our Piotroski F-score screener and Walter Schloss Screen to find stocks with healthier financial indicators.
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.
