Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Dominion Energy Inc (D, Financial). The stock, which is currently priced at $46.51, recorded a loss of 1.15% in a day and a 3-month increase of 3.68%. The stock's fair valuation is $84.67, as indicated by its GF Value.
Understanding the GF Value
The GF Value is a unique measure that represents the current intrinsic value of a stock, derived from GuruFocus's exclusive methodology. The GF Value Line provides an overview of the fair value at which the stock should be traded. It is calculated based on historical trading multiples such as PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow, adjusted for the company's past returns and growth, and incorporates future business performance estimates. Typically, the stock price will fluctuate around the GF Value Line, and if it is significantly below this line, it could indicate a higher future return.
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 Dominion Energy should not be ignored. These risks are primarily reflected through its low Altman Z-score of 0.74, suggesting that Dominion Energy, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Decoding 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.
Dominion Energy Inc at a Glance
Based in Richmond, Virginia, Dominion Energy is an integrated energy company with significant assets in electric generation capacity and electric transmission and distribution lines. The company is also constructing a rate-regulated 5.2 GW wind farm off the Virginia Beach coast. With a market capitalization of $38.90 billion and sales of $19.90 billion, Dominion Energy presents itself as a substantial player in the energy sector. However, when comparing the stock price to the GF Value, which estimates fair value, it becomes evident that a deeper exploration of the company's financial health is required.
The Concern of Dominion Energy's Low Altman Z-Score
A closer look at Dominion Energy's Altman Z-score of 0.74 reveals a troubling picture of the company's financial well-being. This score is well below the threshold of 1.8, which indicates a high probability of financial distress. Such a low Z-score can be a red flag for investors, signaling that the company may face difficulties in meeting its financial obligations.
In conclusion, while Dominion Energy Inc (D, Financial) appears to be undervalued based on its GF Value, the low Altman Z-score suggests that the company could be a value trap. Investors should exercise caution and conduct extensive due diligence before considering an investment in Dominion Energy. For those seeking stocks with high Altman Z-Scores, GuruFocus Premium members can use the Walter Schloss Screen to find more financially secure options.
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.
