Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Pediatrix Medical Group Inc (MD, Financial). The stock, which is currently priced at 12.64, recorded a loss of 9.52% in a day and a 3-month decrease of 8.47%. The stock's fair valuation is $23.29, as indicated by its GF Value.
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 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.
We believe the GF Value Line is the fair value that the stock should be traded at. The stock price will most likely fluctuate around the GF Value Line. 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.
Uncovering the Potential 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 Pediatrix Medical Group should not be ignored. These risks are primarily reflected through its low Altman Z-score of 1.63. These indicators suggest that Pediatrix Medical Group, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Deciphering 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.
Introduction to Pediatrix Medical Group
Pediatrix Medical Group Inc provides physician services to hospitals, intensive care units, and other medical units. The services provided by the company include maternal care for expectant mothers, intensive care for premature babies, cardiology care for infants suffering from heart defects, and anesthesia care during surgeries, among others. The company operates only under one segment, which is physician services. The company generates roughly half of its revenue from the women's and children's services provided, and also roughly half of the company's total revenue is earned in the United States.
Pediatrix Medical Group's Low Altman Z-Score: A Breakdown of Key Drivers
A dissection of Pediatrix Medical Group's Altman Z-score reveals Pediatrix Medical Group's financial health may be weak, suggesting possible financial distress:
Conclusion
In conclusion, while Pediatrix Medical Group (MD, Financial) might seem like an attractive investment opportunity due to its lower-than-intrinsic-value price, the risks associated with the company's financial health cannot be ignored. The low Altman Z-score indicates potential financial distress, making Pediatrix Medical Group a potential value trap. As always, thorough due diligence is essential before making any investment decision.
GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
