Value-focused investors are always on the prowl for undervalued stocks with untapped potential. Bloom Energy Corp (BE, Financial) presents itself as a candidate with its current stock price at $14.31, reflecting a 5.61% gain in a single day and a 3-month decrease of 7.38%. According to the GF Value, the fair valuation of Bloom Energy (BE) stands at $25.14, suggesting a possible undervaluation.
Understanding the GF Value
The GF Value is a unique intrinsic value estimation, calculated based on historical trading multiples like the PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow, adjusted for the company's past performance and expected future results. This value serves as a benchmark, indicating that a stock trading significantly below this line might offer higher future returns, whereas one trading above it could lead to poorer outcomes.
However, before taking the plunge, investors should be wary of the risks tied to Bloom Energy. The company's precarious financial indicators, such as an Altman Z-score of -0.47, and a Beneish M-Score of 0.17, signal potential financial distress and earnings manipulation. Furthermore, a five-year decline in revenues and Earnings Per Share (EPS) intensifies the debate: is Bloom Energy a hidden gem or a value trap?
Deciphering Financial Health Scores
The Piotroski F-score, Altman Z-score, and Beneish M-Score are pivotal tools for evaluating a company's financial health, risk of bankruptcy, and the integrity of its earnings. Bloom Energy's low Piotroski F-Score is a red flag for investors, while its Altman Z-score, combining five financial ratios, reveals a high likelihood of financial distress. The Beneish M-Score, meanwhile, scrutinizes eight financial variables to detect potential earnings manipulation.
Snapshot of Bloom Energy's Operations
Bloom Energy designs, manufactures, and installs fuel cell systems known as Energy Servers, which provide on-site power generation. With a market cap of $3.20 billion and sales of $1.40 billion, the company has ventured into the electrolyzer market, banking on its solid-oxide fuel cell technology. Despite an operating margin of -18.23% and a negative return on invested capital (ROIC) of -17.38%, Bloom Energy's valuation remains a topic of interest for investors.
Bloom Energy's Financial Distress Indicators
An examination of Bloom Energy's EBIT to Total Assets ratio over the past three years reveals a downward trend (-0.08 in 2021, -0.13 in 2022, and -0.11 in 2023), indicating inefficiencies in asset utilization to generate profits. This trend is a contributing factor to the company's low Altman Z-score, hinting at potential financial troubles ahead.
The Gross Margin trajectory also paints a bleak picture, with a 4.48% contraction over the past three years (21.90 in 2021, 13.49 in 2022, and 12.28 in 2023). This decline in profitability could signal operational challenges and raise concerns over the company's financial stability.
The TATA ratio, which measures the quality of earnings, stands at a positive 0.073 for Bloom Energy. A high TATA ratio suggests that earnings may be inflated through accruals rather than actual cash flow, raising doubts about the sustainability of reported income.
Warning Signs: Dwindling Revenues and Earnings
Bloom Energy's revenue per share and 5-year revenue growth rate have been on a decline, with respective figures from the last five years showing a worrying trend (2019: 5.96; 2020: 6; 2021: 5.15; 2022: 6.01; 2023: 6.97; and a -6.3% growth rate). This could be indicative of reduced market demand or increased competition, posing significant risks to the company's future prospects.
The Red Flag: Stagnant Earnings Growth
Despite a seemingly attractive price-to-fair-value ratio, the declining trajectory of Bloom Energy's revenues and earnings casts doubt on its investment appeal. Declining financial metrics, absent a clear strategy for reversal, suggest that the current valuation may reflect a value trap rather than an opportunity.
Conclusion
Upon closer scrutiny, Bloom Energy's financial indicators, coupled with its declining revenues and earnings, suggest that it may indeed be a value trap. Investors are advised to conduct thorough due diligence and consider the company's financial health and market position before making investment decisions. For those seeking more secure investment avenues, GuruFocus provides various screeners to identify companies with robust financials and growth prospects.
GuruFocus Premium members can find high-quality stocks using the GuruFocus High Quality Low Capex Screener and those with strong revenue and earnings growth through the Peter Lynch Growth with Low Valuation Screener.
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.
