For value-focused investors, stocks priced below their intrinsic value are the proverbial diamonds in the rough. Bilibili Inc (BILI, Financial), a Chinese online entertainment platform, seems to fit this bill. The stock, currently priced at $13.72, recorded a day gain of 6.11% and a 3-month decrease of 10.54%. The stock's fair valuation, according to its GF Value, is $33.88.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock, derived from our exclusive method. This value indicates the fair price at which the stock should trade. It's calculated based on historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, the GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Scrutinizing the Potential Value Trap
Despite its seemingly attractive valuation, certain risk factors associated with Bilibili should not be ignored. These risks are primarily reflected through its low Altman Z-score of 0.68. This score suggests that Bilibili, despite its apparent undervaluation, might be a potential value trap, underlining the importance of thorough due diligence in investment decision-making.
Decoding the Altman Z-Score
The Altman Z-score, invented by New York University Professor Edward I. Altman in 1968, 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.
Unveiling Bilibili's Business Landscape
Bilibili, founded in 2009, is best known for its video-sharing site that resembles YouTube. Initially, it started as a platform for anime, comics, and gaming content that appealed to Gen Z users. Since then, it has expanded its content to include a broader range of interests, attracting Chinese users outside of the Gen Z cohort. The firm generates revenue through advertising, games, live streaming, value-added services, and e-commerce.
Dissecting Bilibili's Low Altman Z-Score
A breakdown of Bilibili's Altman Z-score reveals potential financial distress. The EBIT to Total Assets ratio, a crucial barometer of a company's operational effectiveness, has shown a descending trend in Bilibili's case (2021: -0.09; 2022: -0.19; 2023: -0.15). This reduction suggests that Bilibili might not be utilizing its assets to their full potential to generate operational profits, which could be negatively affecting the company's overall Z-score.
Another key indicator of operational efficiency is Bilibili's asset turnover. The data from the past three years (2021: 0.50; 2022: 0.45; 2023: 0.52) suggests a recent decline following an initial increase in this ratio. A drop in this ratio can signify reduced operational efficiency, potentially due to underutilization of assets or decreased market demand for the company's products or services. This shift in Bilibili's asset turnover underlines the need for the company to reassess its operational strategies to optimize asset usage and boost sales.
Conclusion: Navigating the Value Trap
While Bilibili (BILI, Financial) may appear undervalued based on its GF Value, the low Altman Z-score and declining asset turnover ratio indicate potential financial distress. These factors suggest that Bilibili might be a value trap, emphasizing the importance of thorough financial analysis before investing. GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
