For value investors, the allure of uncovering an undervalued stock is a persistent quest. Bloom Energy Corp (BE, Financial) presents itself as a candidate for such an investment, with its stock price currently at $12.87, reflecting a day's loss of 4.74% and a 3-month decline of 16.48%. The company's GF Value is estimated at $25.1, suggesting a potential undervaluation. However, the question arises: Is Bloom Energy truly undervalued, or is it a value trap?
Understanding GF Value
The GF Value is an intrinsic value metric exclusively developed by GuruFocus. It takes into account historical trading multiples such as PE, PS, PB ratios, and Price-to-Free-Cash-Flow, adjusted for the company's past performance and growth, and incorporates future business performance estimates. This calculated fair value is where the stock price is expected to gravitate around, with significant deviations indicating overvaluation or undervaluation.
Despite the attractive valuation suggested by the GF Value, a deeper analysis reveals concerning risk factors associated with Bloom Energy. The company's low Altman Z-score of -0.44 and a Beneish M-Score of 0.17, which surpasses the -1.6 threshold, indicate potential financial distress and earnings manipulation. Moreover, a downward trend in revenues and Earnings Per Share (EPS) over the past five years raises a critical question: is Bloom Energy a hidden gem or a value trap?
Financial Health Indicators
Bloom Energy's financial health can be assessed using the Piotroski F-score, which is currently low, signaling potential financial concerns. The Altman Z-score predicts bankruptcy risk and a score below 1.8 indicates high financial distress. The Beneish M-Score detects earnings manipulation, with certain financial variables suggesting aggressive accounting practices. These scores are critical for investors to consider when evaluating a company's investment viability.
Company Overview
Bloom Energy Corp designs, manufactures, and installs solid-oxide fuel cell systems, known as "Energy Servers," which provide on-site power generation. The company's technology is fuel-flexible, utilizing natural gas, biogas, and hydrogen. Bloom Energy has a market presence in the United States and South Korea and has ventured into the electrolyzer market. With a market cap of $2.90 billion and sales of $1.40 billion, Bloom Energy operates with an operating margin of -18.23% and a ROIC of -17.38%, weighed against a WACC of 14.21%.
Bloom Energy's Financial Distress Signals
Bloom Energy's increasing Days Sales Outstanding (DSO) figures, from 30.85 in 2021 to 67.84 in 2023, suggest potential financial distress. A rising DSO can indicate aggressive revenue recognition or earnings manipulation, which are red flags for investors. Similarly, the company's declining Gross Margin from 21.90% in 2021 to 12.28% in 2023, which signifies a contraction of 4.48%, points to potential challenges in profitability and financial stability.
The TATA ratio, which measures accruals against cash flow, is also a concern for Bloom Energy with a current TATA ratio (TTM) of 0.073. A positive TATA ratio indicates that earnings may not be reflective of actual cash earnings, which could be a sign of aggressive income recognition or poor earnings quality.
Declining Performance Indicators
Bloom Energy's declining revenue per share, with a 5-year revenue growth rate of -6.3%, and Earnings Per Share (EPS) indicate potential underlying problems. These trends may reflect decreasing demand, increased competition, or other challenges that could impact the company's future performance and should be thoroughly analyzed by investors.
Conclusion
While Bloom Energy's price-to-fair-value ratio might appear enticing, the company's falling revenues and earnings growth cast doubt on its investment appeal. Given these warning signs, Bloom Energy may be more of a value trap than a genuine value opportunity. Investors should approach with caution and conduct comprehensive due diligence before considering an investment in Bloom Energy.
For more insights and to find high-quality investment opportunities, GuruFocus Premium members can utilize our various screeners, such as the Piotroski F-score screener, Walter Schloss Screen, and the GuruFocus High Quality Low Capex Screener. Additionally, the Peter Lynch Growth with Low Valuation Screener can help identify stocks with solid revenue and earnings growth.
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.
