Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Bloom Energy Corp (BE, Financial). The stock, which is currently priced at $10.87, recorded a gain of 8.37% in a day and a 3-month decrease of 30.19%. The stock's fair valuation is $25.02, as indicated by its GF Value.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from GuruFocus' exclusive method. It is calculated based on historical 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 future estimates of business performance. The GF Value Line suggests a fair value at which the stock should trade. A significant deviation from this line could indicate overvaluation or potential undervaluation.
However, before making an investment decision, a more in-depth analysis is necessary. Despite its seemingly attractive valuation, the risk factors associated with Bloom Energy should not be overlooked. These risks are reflected through its low Altman Z-score of -0.64, and a Beneish M-Score of 0.17 that exceeds -1.6, the threshold for potential earnings manipulation. Additionally, the company's revenues per share and Earnings Per Share (EPS) have been on a downward trend over the past five years, raising the question: Is Bloom Energy a hidden gem or a value trap?
Financial Health Indicators
The Piotroski F-score is a gauge of financial health, with a score ranging from 0 to 9. Bloom Energy's low score indicates potential financial weaknesses. The Altman Z-score, predicts bankruptcy risk and a score below 1.8 suggests financial distress. The Beneish M-Score detects earnings manipulation, with a score above -1.6 indicating potential manipulation risks.
Company Overview
Bloom Energy designs, manufactures, and installs solid-oxide fuel cell systems for on-site power generation. Known for their Energy Servers, which can use natural gas, biogas, and hydrogen, Bloom Energy has a market presence primarily in the United States and South Korea. With a market cap of $2.40 billion and sales of $1.40 billion, the company's financials present a mixed picture, with an operating margin of -18.23% and a Return on Invested Capital (ROIC) of -17.38%, weighed against a Weighted Average Cost of Capital (WACC) of 16.44%.
Bloom Energy's Low Altman Z-Score: A Breakdown of Key Drivers
The EBIT to Total Assets ratio is a key measure of operational effectiveness. Bloom Energy's descending trend in this ratio (2021: -0.08; 2022: -0.13; 2023: -0.11) suggests inefficiency in using assets to generate profits, negatively impacting the Z-score and indicating possible financial distress.
The Gross Margin index reflects the proportion of gross profit to revenue. Bloom Energy's Gross Margin has contracted by 4.48% over the past three years (2021: 21.90; 2022: 13.49; 2023: 12.28), indicating potential profitability issues and financial instability.
The TATA ratio reflects the quality of earnings. Bloom Energy's current positive TATA ratio (TTM) of 0.073 suggests earnings may be more accrual-based than cash-based, indicating aggressive income recognition and possibly poor earnings quality.
Warning Signs: Declining Revenues and Earnings
Declining revenue per share and a 5-year revenue growth rate of -6.3% highlight potential challenges for Bloom Energy, such as reduced demand or increased competition. These trends necessitate careful analysis by investors.
The Red Flag: Sluggish Earnings Growth
Despite a low price-to-fair-value ratio, Bloom Energy's falling revenues and earnings are concerning. Without a clear turnaround strategy, the risk of continued performance deterioration and further price declines is significant, potentially indicating a value trap rather than an opportunity.
Conclusion: The Value Trap Dilemma
Bloom Energy, with its low price relative to intrinsic value, might seem like an attractive investment at first glance. However, the company's declining financial metrics, such as revenues and earnings, coupled with concerning scores like the Altman Z-score and Beneish M-score, suggest that the low price might be indicative of deeper issues. These warning signs point to the possibility of Bloom Energy being a value trap, where the stock appears undervalued but is actually priced appropriately due to underlying business challenges. Investors are advised to conduct thorough due diligence and consider these red flags before making an investment decision.
For more detailed analysis and investment screening tools, GuruFocus Premium members can access specialized screeners such as the Piotroski F-score screener, Walter Schloss Screen, and GuruFocus High Quality Low Capex Screener. For growth-focused investors, the Peter Lynch Growth with Low Valuation Screener is also available.
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.
