Is Brookfield Business Partners LP (BBU) Too Good to Be True? A Comprehensive Analysis of a ...
Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Brookfield Business Partners LP (NYSE:BBU). The stock, which is currently priced at 16.97, recorded a gain of 5.21% in a day and a 3-month decrease of 14.43%. The stock's fair valuation is $31.2, as indicated by its GF Value.
Understanding 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, and future estimates of the 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.
Investing in Brookfield Business Partners LP: A Closer Look
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 Brookfield Business Partners LP should not be ignored. These risks are primarily reflected through its low Altman Z-score of 0.81. These indicators suggest that Brookfield Business Partners LP, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Understanding 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.
A Snapshot of Brookfield Business Partners LP
Brookfield Business Partners LP is a business services and industrials company. It is focused on operating businesses that are either low-cost producers and benefit from high barriers to entry. The company's operating segment includes Business services; Infrastructure services; Industrials and Corporate and others. It generates maximum revenue from the Business Services segment. Geographically, it derives a majority of revenue from the United Kingdom and also has a presence in the United States of America; Europe; Australia; Canada; Brazil; Mexico and Other Countries.
Brookfield Business Partners LP's Low Altman Z-Score: A Breakdown of Key Drivers
A dissection of Brookfield Business Partners LP's Altman Z-score reveals Brookfield Business Partners LP's financial health may be weak, suggesting possible financial distress.
Conclusion
Despite its seemingly attractive valuation, the low Altman Z-score and other risk factors suggest that Brookfield Business Partners LP might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making. GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
This article first appeared on GuruFocus.
