With a daily gain of 2.65%, Fidelity National Information Services Inc (FIS, Financial) has raised eyebrows among investors. However, the company's Loss Per Share stands at 39.77, prompting us to delve deeper into its valuation. Is FIS a potential value trap? Let's explore.
Company Overview
Fidelity National Information Services Inc (FIS, Financial) has a rich legacy in providing core processing and ancillary services to banks. The company has expanded its operations over time, acquiring Sungard in 2015 and Worldpay in 2019. These acquisitions have diversified FIS's services to include record-keeping for investment firms and payment processing for merchants. FIS holds leading positions in the United States and the United Kingdom, with about a fourth of its revenue generated outside North America.
Understanding the GF Value
The GF Value is an exclusive measure of a stock's intrinsic value, calculated considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. This GF Value Line provides an overview of the stock's ideal fair trading value.
When the stock price is significantly above the GF Value Line, it is considered overvalued and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued and could offer higher future returns.
Fidelity National Information Services (FIS, Financial) Valuation
Based on GuruFocus' valuation method, Fidelity National Information Services (FIS) shows signs of being a potential value trap. The GF Value estimates the stock's fair value at $117.85 per share, considering historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. However, at its current price of $58.81 per share, FIS stock may be undervalued, warranting a closer look.
Financial Strength
Before investing, it's crucial to assess a company's financial strength. Companies with poor financial strength pose a higher risk of permanent loss. A company's financial strength can be gauged by its cash-to-debt ratio and interest coverage. Fidelity National Information Services has a cash-to-debt ratio of 0.1, which is worse than 92.55% of companies in the Software industry. This indicates that FIS's financial strength is poor.
Profitability and Growth
Investing in profitable companies carries less risk. Fidelity National Information Services has been profitable 9 out of the past 10 years. Its operating margin of 12.58% is better than 78.05% of companies in the Software industry. However, its growth ranks worse than 66.76% of companies in the Software industry, with a 3-year average annual revenue growth rate of 1.6%.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. FIS's ROIC stands at 2.96, while its WACC is at 6.93.
Indications of a Value Trap
Despite signs of undervaluation, Fidelity National Information Services carries potential risks. The company's Altman Z-score stands at -1.18, indicating a distressed financial position and an increased bankruptcy risk. An Altman Z-score above 2.99 would reflect a safer financial position. To understand the Z-score's role in assessing a company's financial risk, please click here.
Conclusion
Overall, Fidelity National Information Services (FIS, Financial) shows signs of being a potential value trap. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 0% of companies in the Software industry. To learn more about Fidelity National Information Services stock, check out its 30-Year Financials here.
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