Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Fidelity National Information Services Inc (FIS, Financial). The stock, which is currently priced at $55.26, recorded a loss of 1.25% in a day and a 3-month increase of 2.74%. The stock's fair valuation is $114.92, as indicated by its GF Value.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
Identifying the Value Trap
Despite its seemingly attractive valuation, certain risk factors associated with Fidelity National Information Services should not be ignored. These risks are primarily reflected through its low Altman Z-score of -1.19. These indicators suggest that Fidelity National Information Services, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Understanding the Altman Z-score
Invented by New York University Professor Edward I. Altman in 1968, the Z-Score is a financial model that predicts 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
Fidelity National Information Services' legacy operations provide core processing and ancillary services to banks, but its business has expanded over time. By acquiring Sungard in 2015, the company now provides record-keeping and other services to investment firms. With the acquisition of Worldpay in 2019, FIS now provides payment processing services for merchants and holds leading positions in the United States and United Kingdom. About a fourth of revenue is generated outside North America.
Financial Health Analysis
A dissection of Fidelity National Information Services's Altman Z-score reveals Fidelity National Information Services's financial health may be weak, suggesting possible financial distress.
Conclusion
Given the low Altman Z-score and the company's apparent undervaluation, it can be concluded that Fidelity National Information Services might be a potential value trap. Investors are advised to conduct thorough due diligence before investing.
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