Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is JetBlue Airways Corp (JBLU, Financial). The stock, which is currently priced at 4.73, recorded a gain of 4.88% in a day and a 3-month decrease of 47.44%. The stock's fair valuation is $18.24, 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.
Investigating 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 JetBlue Airways should not be ignored. These risks are primarily reflected through its low Altman Z-score of 0.99. These indicators suggest that JetBlue Airways, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Understanding 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.
JetBlue Airways: A Snapshot
JetBlue Airways Corp is a low-cost airline that offers high-quality service, including assigned seating and in-flight entertainment. It served approximately 100 destinations in the United States, the Caribbean and Latin America, Canada, and England. The company currently operates Airbus A321, Airbus A320, Airbus A321neo, and Embraer E190 aircraft types. The operating segments of company are Domestic & Canada, Caribbean & Latin America and Atlantic. Majority of revenue is generated from Domestic & Canada segment.
Dissecting JetBlue Airways's Low Altman Z-Score
A dissection of JetBlue Airways's Altman Z-score reveals JetBlue Airways's financial health may be weak, suggesting possible financial distress:
The Retained Earnings to Total Assets ratio provides insights into a company's capability to reinvest its profits or manage debt. Evaluating JetBlue Airways's historical data, 2021: 0.19; 2022: 0.17; 2023: 0.18, we observe a declining trend in this ratio. This downward movement indicates JetBlue Airways's diminishing ability to reinvest in its business or effectively manage its debt. Consequently, it exerts a negative impact on its Z-Score.
Conclusion: A Value Trap?
Given the low Altman Z-Score and declining Retained Earnings to Total Assets ratio, JetBlue Airways (JBLU, Financial) might indeed be a value trap. Despite its seemingly attractive valuation, the risk factors associated with the company's financial health suggest that potential investors should exercise caution. Thorough due diligence is essential before making an investment decision.
GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
