For value-focused investors, stocks priced below their intrinsic value are a treasure trove. One such stock that has caught the eye of many is Paramount Global (PARA, Financial). Despite its attractive price of $13.62 and a GF Value indicating a fair valuation of $33.03, there are certain risk factors that cannot be ignored. This comprehensive analysis aims to uncover the hidden risks and potential rewards of investing in Paramount Global (PARA).
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock, derived from an exclusive method developed by GuruFocus. The GF Value Line provides an overview of the fair value at which the stock should be traded, based on historical multiples, GuruFocus adjustment factor, and future business performance estimates. However, if the stock price is significantly above or below the GF Value Line, it is likely to yield poor or higher future returns, respectively.
Despite its seemingly attractive valuation, Paramount Global (PARA, Financial) might be a potential value trap. This assertion is supported by its low Piotroski F-score of 2 and Altman Z-score of 1.04. These indicators underline the importance of thorough due diligence in investment decision-making.
Decoding the Piotroski F-score and Altman Z-score
The Piotroski F-score assesses the strength of a company's financial health based on nine criteria. A lower score, like Paramount Global's current score of 2, suggests potential red flags for investors. On the other hand, the Altman Z-Score predicts the probability of a company entering bankruptcy within two years. A score below 1.8, such as Paramount Global's score of 1.04, suggests a high likelihood of financial distress.
Assessing Paramount Global's Profitability
Profitability is a significant component of the F-Score. 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.
Paramount Global's financial health is further questioned by the decline in its ROA over the past three years. The data indicates 2021: 6.36%; 2022: 6.05%; 2023: -2.05%. Such a decrease is concerning as it suggests a potential risk associated with investing in Paramount Global.
Moreover, the discrepancy between Paramount Global's operating cash flow ($-773 million) and its net income ($-1165 million) over the trailing twelve months (TTM) is a potential red flag. This discrepancy suggests that the company might have difficulties sustaining its operations or financing its obligations, which could negatively impact its financial stability and investor confidence.
Leverage, Liquidity and Source of Funds: A Worrying Trend
Paramount Global's financial stability is further questioned by the notable decrease in its current ratio over the past three years, as shown by the data 2021: 1.78; 2022: 1.47; 2023: 1.17. A declining current ratio suggests that Paramount Global's liquidity and capability to manage immediate financial obligations are deteriorating.
Operating Efficiency: A Darker Picture
Paramount Global has seen an increase in its Diluted Average Shares Outstanding over the past three years, signalling that the company has issued more shares. While this provides immediate capital for the business, it can also lead to the dilution of existing shares' value.
Furthermore, Paramount Global follows a discouraging trajectory with a decrease in gross margin percentage over the past three years, as demonstrated by the data provided: 2021: 40.41%; 2022: 34.66%; 2023: 24.80%. This contraction in gross margin suggests that Paramount Global is grappling with either an escalation in the cost of goods sold or dwindling prices - both of which are inauspicious indicators for profitability.
In conclusion, while the Piotroski F-score is not the only lens through which to view a potential investment, it is a robust and comprehensive tool for evaluating a company's financial health. Unfortunately for Paramount Global, its current score suggests potential troubles. Therefore, despite its seemingly attractive valuation, Paramount Global might be a potential value trap.
GuruFocus Premium members can find stocks with high Piotroski F-score using the following Screener: Piotroski F-score screener .
GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
