Value investors are perpetually on the quest for stocks trading below their intrinsic value. Fidelity National Information Services Inc (FIS, Financial) is one such stock that has piqued the interest of many. With its current price at $54.37, experiencing a 1.62% loss in a day and a 3-month rise of 3.58%, it seems to be a bargain compared to its GF Value of $114.9.
Understanding the GF Value
The GF Value is a unique approach to estimating the intrinsic value of a stock. The GF Value Line offers an overview of the fair value at which the stock should be trading. This estimation is based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates.
If the stock price is significantly above the GF Value Line, it implies overvaluation and poor future returns. Conversely, a price significantly below the GF Value Line suggests higher future returns.
Uncovering Potential Risks
Despite its attractive valuation, certain risk factors associated with Fidelity National Information Services (FIS, Financial) should not be overlooked. The company's low Altman Z-score of -1.2 is a significant red flag, indicating potential financial distress. This suggests that Fidelity National Information Services, despite its apparent undervaluation, might be a potential value trap, emphasizing the need for comprehensive due diligence before investing.
Decoding the Altman Z-Score
The Altman Z-score is a financial model developed by NYU Professor Edward I. Altman in 1968. It predicts the likelihood of a company entering bankruptcy within two years by combining five different financial ratios. A score below 1.8 suggests a high risk of financial distress, while a score above 3 signifies a low risk.
A Closer Look at Fidelity National Information Services
Fidelity National Information Services Inc's operations primarily provide core processing and ancillary services to banks. However, with the acquisition of Sungard in 2015 and Worldpay in 2019, the company has expanded its services to investment firms and merchants. Despite its global presence, about a fourth of its revenue is generated outside North America.
The Low Altman Z-Score: A Cause for Concern
An analysis of Fidelity National Information Services's Altman Z-score reveals potential financial distress. This low score underscores the need for investors to exercise caution and thoroughly investigate the company's financial health before making an investment decision.
Conclusion: A Potential Value Trap?
While Fidelity National Information Services may seem like an attractive investment opportunity due to its apparent undervaluation, its low Altman Z-Score suggests it may be a potential value trap. Therefore, investors are advised to conduct thorough due diligence before making an investment decision.
GuruFocus Premium members can find stocks with high Altman Z-Score using the Walter Schloss Screen.
