Is Angi (ANGI) Too Good to Be True? A Comprehensive Analysis of a Potential Value Trap
Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Angi Inc (NASDAQ:ANGI). The stock, which is currently priced at 2.05, recorded a gain of 5.96% in a day and a 3-month decrease of 37.65%. The stock's fair valuation is $7.13, 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:
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.
Future estimates of the business performance.
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 Angi should not be ignored. These risks are primarily reflected through its low Altman Z-score of 1.41. These indicators suggest that Angi, 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
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.
Delving into Angi's Business
Angi Inc connects quality home service professionals across different categories, from repairing and remodeling to cleaning and landscaping, with consumers. The Company has four operating segments: (i) Ads and Leads; (ii) Services; (iii) Roofing; and (iv) International (Europe and Canada). Majority of the revenue is earned from the United States.
Angi's Low Altman Z-Score: A Breakdown of Key Drivers
A dissection of Angi's Altman Z-score reveals Angi'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 Angi's historical data, 2021: -0.01; 2022: -0.06; 2023: -0.12, we observe a declining trend in this ratio. This downward movement indicates Angi's diminishing ability to reinvest in its business or effectively manage its debt. Consequently, it exerts a negative impact on its Z-Score.
The EBIT to Total Assets ratio serves as a crucial barometer of a company's operational effectiveness, correlating earnings before interest and taxes (EBIT) to total assets. An analysis of Angi's EBIT to Total Assets ratio from historical data (2021: -0.02; 2022: -0.05; 2023: -0.05) indicates a descending trend. This reduction suggests that Angi might not be utilizing its assets to their full potential to generate operational profits, which could be negatively affecting the company's overall Z-score.
Conclusion: Is Angi a Value Trap?
Despite Angi's seemingly attractive valuation, the low Altman Z-Score and declining ratios indicate potential financial distress. This suggests that Angi, despite its apparent undervaluation, might be a potential value trap. Therefore, investors should conduct thorough due diligence before making any investment decisions.
GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
This article first appeared on GuruFocus.
