Value-conscious investors continuously scout the market for stocks trading below their intrinsic value. One such candidate that catches the eye is Paramount Global (PARA, Financial). Currently priced at 16.18, with a day's gain of 3.49% and a 3-month loss of 4.73%, it presents an intriguing prospect. However, its fair valuation at $33.2, as measured by its Fair Value (GF Value), does not paint the complete picture. A deeper analysis suggests potential risks associated with this stock, as the low Piotroski F-score and Altman Z-score of Paramount Global might raise red flags for prudent investors. This complex picture hints at the possibility of Paramount Global being a potential value trap.
Understanding the Piotroski F-score and Altman Z-score
The Piotroski F-score, created by accounting professor Joseph Piotroski, is a tool used to assess the strength of a company's financial health. The score is based on nine criteria that fall into three categories: profitability, leverage/liquidity/ source of funds, and operating efficiency. The overall score ranges from 0 to 9, with higher scores indicating healthier financials. Paramount Global's current Piotroski F-Score, however, falls in the lower end of this spectrum, indicating potential red flags for investors.
The Altman Z-score, invented by New York University Professor Edward I. Altman in 1968, is a financial model predicting the probability of a company entering bankruptcy within a two-year time frame. The Altman Z-Score combines five different financial ratios, each weighted to create a final score. A score below 1.8 suggests a high likelihood of financial distress, while a score above 3 indicates a low risk.
Company Snapshot: Paramount Global
Paramount Global is the rebranded combination of CBS and Viacom, creating a media conglomerate with global scale. CBS contributed Showtime, its television assets, 28 local TV stations, and 50% of CW, a joint venture with WarnerMedia. Viacom brought leading cable network properties, including Nickelodeon, MTV, BET, Comedy Central, VH1, CMT, and Paramount. Paramount Pictures produces original motion pictures and owns a library of 2,500 films, including the Mission: Impossible and Transformers series. Paramount operates several streaming services, most notably Paramount+ and Pluto TV.
Analysis of Paramount Global's Profitability
One significant component of the F-Score is a positive return on assets (ROA). A closer look at Paramount Global's ROA reveals a worrying trend of negative returns. This indicates the company's inability to generate profit from its assets - a fundamental concern for any investor.
Examining the decline in Paramount Global's return on assets (ROA) over the past three years, the data indicates 2020: 5.45; 2021: 5.44; 2022: 7.19; 2023: -0.78; , when expressed in percentages. Such a decrease is concerning, as the Piotroski F-Score penalizes companies with lower current ROA compared to the previous period. This ongoing decline highlights another potential risk associated with investing in Paramount Global.
Conclusion: Navigating the Value Trap
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GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
