Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Paramount Global (PARA, Financial). The stock, which is currently priced at $14.79, recorded a loss of 2.38% in a day and a 3-month increase of 14.9%. The stock's fair valuation is $30.53, as indicated by its GF Value.
Understanding the GF Value
The GF Value is an exclusive method developed to ascertain the intrinsic value of a stock. It is derived from historical trading multiples, adjustments based on past performance, and future business projections. While a stock price below the GF Value Line may suggest a good investment opportunity, it is critical to conduct a thorough analysis before making any decisions.
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 Paramount Global should not be ignored. These risks are primarily reflected through its low Piotroski F-score of 1, Altman Z-score of 1.11, and a Beneish M-score indicative of earnings manipulation. These indicators suggest that Paramount Global, 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: Piotroski F-score and Altman Z-score
The Piotroski F-score is a comprehensive measure of a company's financial health, focusing on profitability, leverage, liquidity, and operating efficiency. A low score, such as Paramount Global's, raises concerns about the company's financial stability. Similarly, the Altman Z-score predicts the likelihood of bankruptcy. Paramount Global's score below the critical threshold of 1.8 is a red flag, suggesting high financial distress risk.
Company Overview and Financial Performance
Paramount Global is a vast media conglomerate formed by the merger of CBS and Viacom. It operates a range of television networks, film production studios, and streaming services. Despite the impressive scale and diversified operations, Paramount Global's financial metrics need to be more reassuring. With a market cap of $9.80 billion and sales amounting to $30.10 billion, the company's operating margin and return on invested capital (ROIC) are negative, indicating operational challenges.
Profitability Concerns
Paramount Global's profitability is under scrutiny, with a negative return on assets (ROA) revealing its struggle to profit from its assets. The company's ROA has deteriorated over the past three years, with the most recent figure standing at -1.95%. This trend is alarming and contributes to the low Piotroski F-score.
Moreover, the discrepancy between cash flow from operations and net income is concerning. Paramount Global's cash flow from operations over the trailing twelve months is a negative $76 million, while net income is a much larger negative at $1.101 billion. This disparity suggests poor earnings quality and potential operational sustainability issues.
Leverage, Liquidity, and Source of Funds: A Worrying Trend
Financial stability is also a concern, as indicated by the declining current ratio over the past three years. The most recent figure of 1.26% suggests that Paramount Global's liquidity and ability to manage short-term obligations are weakening.
Operating Efficiency: A Darker Picture
The increase in Diluted Average Shares Outstanding over the past three years indicates share dilution, which can erode shareholder value if earnings do not keep pace. Furthermore, the declining gross margin percentage and asset turnover ratio over the same period suggest operational inefficiencies and potential profitability issues.
While the Piotroski F-score and Altman Z-score are not the only factors to consider, they offer valuable insights into a company's financial health. For Paramount Global, these scores highlight several warning signs that investors should not overlook.
Paramount Global's Low Altman Z-Score: A Breakdown of Key Drivers
The Retained Earnings to Total Assets ratio and EBIT to Total Assets ratio are critical components of the Altman Z-score. Paramount Global's declining ratios in these areas suggest an inability to reinvest profits or manage debt effectively and a lack of operational efficiency. These factors contribute to the low Z-score and underscore the potential financial distress.
Conclusion: Navigating the Risks of a Value Trap
Despite Paramount Global's attractive valuation according to the GF Value, the company's low Piotroski F-score, concerning Altman Z-score, and deteriorating financial indicators suggest it may be a value trap. Investors should exercise caution and conduct in-depth analysis before considering an investment. For those seeking more secure opportunities, GuruFocus Premium members can utilize the Piotroski F-score screener and Walter Schloss Screen to find 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.
