Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Ameresco Inc (AMRC, Financial). The stock, which is currently priced at $29.28, recorded a loss of 7.58% in a day and a 3-month decrease of 32.64%. The stock's fair valuation is $52.24, 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. It is based on historical multiples such as PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow, adjusted for the company's past performance and future business estimates. It serves as a benchmark for investors, suggesting that stocks trading significantly below the GF Value Line may offer higher future returns, whereas those above it may yield poorer returns.
However, a deeper analysis is crucial before making an investment decision. Despite Ameresco's seemingly attractive valuation, the company's low Piotroski F-score of 2, and Altman Z-score of 1.11, signal potential risks that could classify Ameresco as a value trap. These indicators warrant thorough due diligence from investors.
Decoding the Piotroski F-Score and Altman Z-Score
The Piotroski F-score is a measure of financial health, focusing on profitability, leverage, liquidity, and operating efficiency. A low score such as Ameresco's suggests financial instability. Meanwhile, the Altman Z-score predicts bankruptcy risk, with Ameresco's score indicating a potential for financial distress. These scores are critical red flags that investors should not overlook.
Company Overview
Ameresco provides energy efficiency solutions and operates primarily in North America and Europe. The company's business includes governmental, educational, utility, healthcare, and commercial entities. Ameresco's revenue majority comes from the U.S. Regions segment, and it also distributes solar energy products and systems.
Analyzing Ameresco's Profitability
Ameresco's return on assets (ROA) has declined over the past three years, with figures moving from 3.61% in 2021 to 1.52% in 2023. This decrease raises concerns about the company's profitability and financial health. Additionally, a discrepancy between Ameresco's cash flow from operations (-$105.54 million) and its net income ($46.67 million) over the trailing twelve months suggests poor earnings quality and potential operational challenges.
Leverage, Liquidity, and Source of Funds: A Worrying Trend
Ameresco's debt-to-total assets ratio has increased alarmingly, from 0.23 in 2021 to 0.43 in 2023, indicating a growing reliance on debt and escalating financial risk. Moreover, the company's current ratio has declined from 1.44 in 2021 to 1.17 in 2023, pointing to weakening liquidity and an impaired ability to meet short-term obligations.
Operating Efficiency: A Darker Picture
Ameresco has seen an increase in its Diluted Average Shares Outstanding, which can dilute the value of existing shares if earnings do not match the share increase. Furthermore, the company's asset turnover has decreased from 0.61 in 2021 to 0.41 in 2023, suggesting underutilization of assets and a need for operational strategy reassessment.
While the Piotroski F-score is not the sole determinant of a company's worth, Ameresco's low score, combined with its declining ROA, increasing debt, and decreasing liquidity and asset turnover, paint a concerning picture of potential financial troubles.
Ameresco's Low Altman Z-Score: A Breakdown of Key Drivers
Ameresco's EBIT to Total Assets ratio has decreased, indicating inefficiency in using assets to generate profits. This trend, along with the declining asset turnover, suggests that Ameresco may be facing reduced operational efficiency and could be at risk of financial distress.
Conclusion
Considering the various financial indicators, Ameresco presents several warning signs that could classify it as a value trap. The company's financial health, as reflected by its low Piotroski F-score and Altman Z-score, alongside declining profitability and operational efficiency, suggests that investors should proceed with caution. Thorough due diligence is essential when evaluating Ameresco as a potential investment. For investors seeking to avoid such pitfalls, GuruFocus offers tools like the Piotroski F-score screener and the Walter Schloss Screen for identifying stocks with stronger financial health.
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.
