Value-focused investors are constantly on the lookout for stocks trading below their intrinsic value. One stock that warrants attention is Dominion Energy Inc (D, Financial). Currently priced at $45.08, the stock has recorded a day's loss of 2.14% and a three-month decrease of 12.56%. The GF Value of the stock is $91.73, indicating potential undervaluation.
Understanding the GF Value
The GF Value represents a stock's current intrinsic value, derived from GuruFocus's exclusive method. It gives an overview of the fair value at which a stock should trade. The GF Value is calculated based on historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow), the GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance.
However, a deeper analysis is required before making an investment decision. Despite its seemingly attractive valuation, there are certain risk factors associated with Dominion Energy that should not be overlooked. These risks are primarily reflected through its low Altman Z-score of 0.61. This suggests that Dominion Energy, despite appearing undervalued, might be a potential value trap, underlining the importance of thorough due diligence in investment decision-making.
Understanding the Altman Z-Score
The Altman Z-score, developed by New York University Professor Edward I. Altman in 1968, is a financial model that predicts the likelihood of a company entering bankruptcy within two years. It combines five different financial ratios, each weighted to create a final score. A score below 1.8 suggests a high risk of financial distress, while a score above 3 indicates a low risk.
Company Overview
Based in Richmond, Virginia, Dominion Energy is an integrated energy company with over 30 gigawatts of electric generation capacity and more than 90,000 miles of electric transmission and distribution lines. The company is constructing a rate-regulated 5.2 GW wind farm off the Virginia Beach coast. Despite its vast operations, the company's stock price is considerably lower than its GF Value, suggesting potential undervaluation.
Low Altman Z-Score: A Breakdown of Key Drivers
A closer look at Dominion Energy's Altman Z-score suggests potential financial distress, indicating that the company's financial health may be weaker than it appears.
Conclusion
Despite its seemingly attractive valuation, Dominion Energy's low Altman Z-score and potential financial distress suggest it might be a value trap. Investors should exercise caution and conduct thorough due diligence before making an investment decision.
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