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 $12.35, recorded a gain of 16.4% in a single day and a 3-month decrease of 20.17%. The stock's fair valuation is $25.02, as indicated by its 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 historical multiples, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of 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.
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 Bloom Energy should not be ignored. These risks are primarily reflected through its low Altman Z-score of -0.65, and a Beneish M-Score of 0.17 that exceeds -1.6, the threshold for potential earnings manipulation. Moreover, the company's revenues per share and Earnings Per Share (EPS) have been on a downward trend over the past five years, which raises a crucial question: Is Bloom Energy a hidden gem or a value trap?
Understanding Financial Health Scores
The Piotroski F-score is a tool used to assess the strength of a company's financial health. The score is based on nine criteria that fall into three categories: profitability, leverage/liquidity/source of funds, and operating efficiency. Bloom Energy's current Piotroski F-Score, however, falls in the lower end of this spectrum, indicating potential red flags for investors.
The Altman Z-score predicts the probability of a company entering bankruptcy within a two-year time frame. A score below 1.8 suggests a high likelihood of financial distress, while a score above 3 indicates a low risk.
The Beneish M-Score is based on eight financial variables that reflect different aspects of a company's financial performance and position. These variables include Days Sales Outstanding, Gross Margin, Total Accruals to Total Assets, and others that help identify potential earnings manipulation.
Company Profile: Bloom Energy Corp
Bloom Energy designs, manufactures, sells, and installs solid-oxide fuel cell systems for on-site power generation. Known for their Energy Servers, which are fuel-flexible and can use natural gas, biogas, and hydrogen, Bloom Energy has a market presence primarily in the United States and South Korea. Despite this innovative approach, the company's financials have been a concern, with a market cap of $2.80 billion and sales of $1.40 billion, accompanied by an operating margin of -18.23 and a Return on Invested Capital (ROIC) of -17.38. These figures suggest that despite the company's growth potential, there are significant risks involved.
Bloom Energy's Financial Distress Indicators
A closer look at Bloom Energy's financial ratios reveals potential distress. The company's EBIT to Total Assets ratio has been decreasing (2021: -0.08; 2022: -0.13; 2023: -0.11), indicating a lack of effective asset utilization to generate operational profits. This trend is a contributing factor to Bloom Energy's low Altman Z-score.
The Gross Margin has also been contracting (2021: 21.90; 2022: 13.49; 2023: 12.28), by 4.48% over the past three years, which can impact profitability and financial stability. The TATA ratio, which stands at 0.073, suggests that Bloom Energy's earnings may not be as reliable as they appear, hinting at aggressive income recognition practices.
Revenue and Earnings: Warning Signs of Decline
Bloom Energy's declining revenue per share and 5-year revenue growth rate (-6.3%) indicate potential challenges, such as reduced demand or increased competition. This downward trend in both revenues and earnings is a significant concern for investors considering the company's future performance.
Evaluating Bloom Energy's Investment Potential
Despite Bloom Energy's low price-to-fair-value ratio, the declining revenues and earnings overshadow its attractiveness as an investment. The falling financial indicators suggest that the company's issues may extend beyond cyclical fluctuations and without a clear strategy for turnaround, Bloom Energy's performance could continue to deteriorate.
Conclusion: Bloom Energy as a Value Trap
In conclusion, the combination of Bloom Energy's low Piotroski F-score, Altman Z-score, and Beneish M-score, along with a downward trend in revenues and earnings, suggests that the company may indeed be a value trap. While the GF Value indicates a potential for higher future returns, the financial health and performance trends raise serious doubts about the company's ability to realize this potential. Investors are advised to conduct thorough due diligence and consider these warning signs before making an investment decision.
GuruFocus Premium members can access various screeners to find high-quality stocks, such as the Piotroski F-score screener, Altman Z-Score screener, High Quality Low Capex Screener, and Peter Lynch Growth with Low Valuation Screener, to aid in making informed investment choices.
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.
