Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is VF Corp (VFC, Financial). The stock, which is currently priced at $18.59, recorded a loss of 3.23% in a single day and a 3-month increase of 6.94%. The stock's fair valuation is $47.23, as indicated by its GF Value.
Understanding the GF Value
The GF Value is a unique measure that represents the intrinsic value of a stock. It is calculated based on historical multiples such as PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow, an adjustment factor reflecting the company's past returns and growth, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. If the stock price significantly deviates from the GF Value Line, it suggests potential overvaluation or undervaluation, influencing the expected future return.
However, a deeper analysis is crucial before making an investment decision. Despite VF's seemingly attractive valuation, risk factors such as its low Altman Z-score of 1.54 should not be overlooked. These indicators suggest that VF, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Financial Health Indicators: Piotroski F-score and Altman Z-score
The Piotroski F-score is a tool that assesses a company's financial health across nine criteria, including profitability, leverage, liquidity, and operating efficiency. A low score, such as VF's, indicates potential financial weaknesses. The Altman Z-score, on the other hand, predicts the likelihood of bankruptcy. A score below 1.8, like VF's, suggests a high risk of financial distress, raising red flags for investors.
Company Overview
VF designs, produces, and distributes branded apparel, footwear, and accessories. With a portfolio that includes Vans, The North Face, and Timberland, VF has a significant presence in the Americas, Europe, and Asia-Pacific. Despite a rich history dating back to 1899 and a current market cap of $7.20 billion, VF's stock price suggests a disconnect from its GF Value, prompting a closer inspection of its financial stability and growth prospects.
Breaking Down VF's Low Altman Z-Score
An analysis of VF's financial ratios reveals concerning trends. The Retained Earnings to Total Assets ratio has been declining over recent years, with figures moving from 0.04 in 2021 to -0.04 in 2023. This trend suggests a weakening ability to reinvest profits or manage debt, negatively impacting the Altman Z-Score and indicating potential financial distress.
Operational efficiency is another area of concern for VF, as evidenced by the fluctuating asset turnover ratio, which has recently declined from 0.87 in 2022 to 0.82 in 2023. This ratio measures how effectively a company uses its assets to generate sales, and a decrease may point to reduced market demand or underutilization of assets. It is a signal for VF to reevaluate its operational strategies to enhance efficiency and sales performance.
Conclusion: The Value Trap Dilemma
Upon assessing the financial health indicators and operational metrics of VF Corp (VFC, Financial), it becomes evident that the company may indeed be a value trap. The low Piotroski F-score and Altman Z-score, combined with declining retained earnings and asset turnover, paint a picture of financial and operational challenges that could undermine the stock's potential for growth. Investors should exercise caution and conduct thorough research before considering VF as a value investment. GuruFocus Premium members can utilize specialized screeners to find stocks with high Piotroski F-scores and Altman Z-scores, thereby making more informed investment decisions.
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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.
