Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Hawaiian Electric Industries Inc (HE, Financial). The stock, which is currently priced at 11.61, recorded a loss of 17.13% in a day and a 3-month decrease of 63.75%. The stock's fair valuation is $47.86, as indicated by its GF Value.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, an adjustment factor from past returns and growth, and future business performance estimates. This valuation suggests that Hawaiian Electric Industries's stock price should ideally gravitate around the GF Value Line. A price significantly above this line suggests overvaluation, while a price below indicates a potentially higher future return.
However, a more in-depth analysis is crucial before making an investment decision. Despite its seemingly attractive valuation, risk factors associated with Hawaiian Electric Industries should not be overlooked. These risks are highlighted by its low Altman Z-score of 0.92. This indicator suggests that Hawaiian Electric Industries, 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.
Company Overview
Hawaiian Electric Industries is the parent company of three Hawaii-based regulated utilities and Hawaii's American Savings Bank. The utilities provide electricity on the five islands of Oahu, Hawaii, Maui, Molokai, and Lanai. Nearly 40% of electricity in its service territory comes from renewable energy; this portion is growing rapidly as the state has set a goal of 100% by 2045. Comparing the current stock price with the GF Value, one can start to assess whether Hawaiian Electric Industries presents a compelling investment opportunity or if it is a value trap.
Hawaiian Electric Industries's Low Altman Z-Score: A Breakdown of Key Drivers
A dissection of Hawaiian Electric Industries's Altman Z-score reveals that the company's financial health may be weaker than it appears, suggesting possible financial distress. This low score is a red flag for investors, indicating that the company could face challenges in maintaining financial stability and thus, might not be the undervalued opportunity it seems to be at first glance.
Conclusion
While the initial numbers may paint Hawaiian Electric Industries as an undervalued stock, the underlying financial health metrics, such as the Altman Z-score, tell a different story. It is these indicators that suggest Hawaiian Electric Industries might indeed be a value trap. Investors are encouraged to exercise caution and conduct thorough research before considering an investment. For those seeking stocks with high Altman Z-Scores, GuruFocus Premium members can use the Walter Schloss Screen to find more stable investment opportunities.
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.
