Value-focused investors are constantly searching for stocks priced below their intrinsic value. One such stock that has caught the attention of many is Paramount Global (PARA, Financial). Despite its seemingly attractive valuation, certain risk factors associated with Paramount Global should not be ignored. This complexity underlines the importance of thorough due diligence in investment decision-making.
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 historical multiples that the stock has traded at, adjustments based on the company's past returns and growth, and future estimates of business performance.
Key Risk Indicators
While the GF Value provides an initial indication of a stock's potential, other critical factors must also be considered. Paramount Global's low Piotroski F-score of 2 and Altman Z-score of 1.04, suggest potential financial instability. These scores indicate that Paramount Global, despite its apparent undervaluation, might be a potential value trap.
What Do These Scores Mean?
The Piotroski F-score is a tool used to assess the strength of a company's financial health. It 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.
The Altman Z-score is a financial model that predicts the probability of a company entering bankruptcy within a two-year time frame. A score below 1.8 suggests a high likelihood of financial distress, while a score above 3 indicates a low risk.
Company Overview
Paramount Global is a media conglomerate with global scale. It operates several leading cable network properties, produces original motion pictures, and operates a number of streaming services. Despite its extensive operations, the company's financial indicators suggest potential risks for investors.
Analysis of Paramount Global's Profitability
A closer look at Paramount Global's ROA reveals a worrying trend of negative returns, indicating the company's inability to generate profit from its assets. The data shows a decrease in ROA over the past three years (2021: 6.36%; 2022: 6.05%; 2023: -2.05%), further highlighting potential risks associated with investing in Paramount Global.
Leverage, Liquidity and Source of Funds: A Worrying Trend
Paramount Global's current ratio has been decreasing over the past three years (2021: 1.78; 2022: 1.47; 2023: 1.17), suggesting a deterioration in its ability to manage immediate financial obligations.
Operating Efficiency: A Darker Picture
Paramount Global has seen an increase in its Diluted Average Shares Outstanding over the past three years, signaling that the company has issued more shares. This could lead to the dilution of existing shares' value if the company's earnings don't grow at a pace that matches or exceeds this share increase.
In conclusion, while Paramount Global may seem like an attractive investment opportunity at first glance, a deeper analysis of its financial health suggests it might be a potential value trap. As always, thorough due diligence is key to making informed investment decisions.
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