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 (FIS, Financial). The stock, which is currently priced at 57.19, recorded a gain of 1.44% in a day and a 3-month increase of 6.46%. The stock's fair valuation is $114.98, as indicated by its GF Value.
Decoding 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:
- 1. Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
- 2. GuruFocus adjustment factor based on the company's past returns and growth.
- 3. Future estimates of the business performance.
If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Unpacking the Risks
However, investors need to consider a more in-depth analysis before making an investment decision. 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
Before delving into the details, let's understand what the Altman Z-score entails. 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.
A Snapshot of Fidelity National Information Services
Fidelity National Information Services' legacy operations provide core processing and ancillary services to banks. However, 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.
Dissecting Fidelity National Information Services' Low Altman Z-Score
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: A Value Trap?
Despite its seemingly attractive valuation, the low Altman Z-Score and other risk factors suggest that Fidelity National Information Services might be a potential value trap. Therefore, investors should exercise caution and conduct thorough due diligence before making an investment decision.
GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
