Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Catalent Inc (CTLT, Financial). The stock, currently priced at 32.91, recorded a loss of 17.56% in a day and a 3-month decrease of 33.61%. The stock's fair valuation is $98.93, as indicated by its GF Value.
Understanding 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.
Catalent's Financial Health: A Closer Look
Despite its seemingly attractive valuation, certain risk factors associated with Catalent should not be ignored. These risks are primarily reflected through its low Altman Z-score of 1.18. These indicators suggest that Catalent, 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.
Catalent: A Company Overview
Catalent is a contract development and manufacturing organization, or CDMO. It operates under four segments: biologics, softgel and oral technologies, oral and specialty delivery, and clinical supply services. Catalent derives its revenues primarily from long-term supply agreements with pharmaceutical customers. The company provides a range of development and manufacturing solutions for drugs, protein-based biologics, cell and gene therapies, and consumer health products throughout the entire life cycle of a product from the drug development process to commercial supply.
Breaking Down Catalent's Low Altman Z-Score
A dissection of Catalent's Altman Z-score reveals Catalent's financial health may be weak, suggesting possible financial distress. The Retained Earnings to Total Assets ratio provides insights into a company's capability to reinvest its profits or manage debt. Evaluating Catalent's historical data, 2021: 0.00; 2022: 0.05; 2023: 0, we observe a recent decline following an initial increase in this ratio.
The EBIT to Total Assets ratio serves as a crucial barometer of a company's operational effectiveness, correlating earnings before interest and taxes (EBIT) to total assets. An analysis of Catalent's EBIT to Total Assets ratio from historical data (2021: 0.09; 2022: 0.07; 2023: -0.01) indicates a descending trend.
When it comes to operational efficiency, a vital indicator for Catalent is its asset turnover. The data: 2021: 0.48; 2022: 0.48; 2023: 0.40 from the past three years suggests a decreasing trend in this ratio.
Conclusion
Given the declining trends in key financial ratios and a low Altman Z-Score, Catalent presents potential risks that investors must consider. Despite its seemingly attractive valuation, Catalent might be a potential value trap, emphasizing the need for thorough due diligence before making an investment decision.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
