Value-focused investors are constantly on the lookout for stocks that are undervalued. One such stock that has caught the eye of many is Regal Rexnord Corp (RRX, Financial). The stock, currently priced at 100.03, has recorded a day's loss of 15.38% and a 3-month decrease of 37.73%. Despite this, the fair valuation of the stock stands at $168.24, according to its GF Value.
Understanding the GF Value
The GF Value is a unique method that calculates the current intrinsic value of a stock. This value is represented by the GF Value Line on our summary page, providing an overview of the fair value at which the stock should be traded. This value is derived based on historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance.
However, before making an investment decision, it's crucial to conduct a more in-depth analysis. Despite its seemingly attractive valuation, Regal Rexnord (RRX, Financial) has certain risk factors that should not be ignored. These risks are primarily reflected through its low Altman Z-score of 1.32. These indicators suggest that Regal Rexnord, 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
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.
A Closer Look at Regal Rexnord
Regal Rexnord Corp is a global leader in the engineering and manufacturing of industrial powertrain solutions, power transmission components, electric motors and electronic controls, air moving products and specialty electrical components and systems. Despite the company's impressive portfolio and a market cap of $6.60 billion, the stock's price has been underperforming, as indicated by its GF Value.
Regal Rexnord's Low Altman Z-Score: A Breakdown of Key Drivers
A closer look at Regal Rexnord's Altman Z-score reveals potential financial distress. Key indicators such as the Retained Earnings to Total Assets ratio, EBIT to Total Assets ratio, and asset turnover all show declining trends, indicating potential issues with debt management, operational efficiency, and asset utilization.
Conclusion
Despite the apparent undervaluation of Regal Rexnord (RRX, Financial), the company's low Altman Z-Score and declining financial health indicators suggest that it might be a potential value trap. Therefore, investors should exercise caution and conduct thorough due diligence before making an investment decision.
GuruFocus Premium members can find stocks with high Altman Z-Score using the Walter Schloss Screen .
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.
