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Is Enlight Renewable Energy (ENLT) Too Good to Be True? A Comprehensive Analysis of a Potential ...

Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Enlight Renewable Energy (NASDAQ:ENLT). The stock, which is currently priced at 15.51, recorded a loss of 3.06% in a day and a 3-month decrease of 11.97%. The stock's fair valuation is $29.41, 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:

  • 1. Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.

  • 2. GuruFocus adjustment factor based on the company's past returns and growth.

  • 3. Future estimates of the business performance.

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.

Is Enlight Renewable Energy (ENLT) Too Good to Be True? A Comprehensive Analysis of a Potential Value Trap
Is Enlight Renewable Energy (ENLT) Too Good to Be True? A Comprehensive Analysis of a Potential Value Trap

Enlight Renewable Energy: A Potential Value Trap?

Despite its seemingly attractive valuation, certain risk factors associated with Enlight Renewable Energy should not be ignored. These risks are primarily reflected through its low Altman Z-score of 0.65. These indicators suggest that Enlight Renewable Energy, 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.

Enlight Renewable Energy: A Closer Look

Enlight Renewable Energy Ltd is a green energy company. It specializes in initiating, developing, financing, constructing, managing, and operating electricity production projects involved in generating electricity from renewable energy sources. It also provides installation services. The company generates the majority of its revenue from its Photovoltaic business in Israel and Eastern Europe.

Is Enlight Renewable Energy (ENLT) Too Good to Be True? A Comprehensive Analysis of a Potential Value Trap
Is Enlight Renewable Energy (ENLT) Too Good to Be True? A Comprehensive Analysis of a Potential Value Trap

Key Drivers of Enlight Renewable Energy's Low Altman Z-Score

A dissection of Enlight Renewable Energy's Altman Z-score reveals Enlight Renewable Energy'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 Enlight Renewable Energy's historical data, 2021: -0.02; 2022: -0.01; 2023: 0.01, we observe a recent decline following an initial increase in this ratio. This downward movement indicates Enlight Renewable Energy'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 Enlight Renewable Energy's EBIT to Total Assets ratio from historical data (2021: -0.01; 2022: 0.02; 2023: 0.03) indicates a recent dip following an initial rise. This reduction suggests that Enlight Renewable Energy 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.


Given the above analysis, it appears that Enlight Renewable Energy may indeed be a value trap. Despite its seemingly attractive valuation, the company's low Altman Z-Score, along with other financial indicators, suggest potential financial distress. Therefore, investors should exercise caution and conduct thorough due diligence before considering an investment in Enlight Renewable Energy.

GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .

This article first appeared on GuruFocus.