Is Hawaiian Electric Industries (HE) 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 Hawaiian Electric Industries Inc (NYSE:HE). The stock, which is currently priced at 13.68, recorded a gain of 41.59% in a day and a 3-month decrease of 62.2%. The stock's fair valuation is $50.25, 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, 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.
Considering the Risks
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 Hawaiian Electric Industries should not be ignored. These risks are primarily reflected through its low Altman Z-score of 0.9. These indicators suggest that Hawaiian Electric Industries, 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.
Introduction to Hawaiian Electric Industries
Hawaiian Electric Industries is the parent company of three Hawaii-based regulated utilities and Hawaii's American Savings Bank. The utilities provide electricity on the five islands of Oahu, Hawaii, Maui, Molokai, and Lanai. Nearly 40% of electricity in its service territory comes from renewable energy; this portion is growing rapidly as the state has set a goal of 100% by 2045.
This is the income breakdown of Hawaiian Electric Industries:
Hawaiian Electric Industries's Low Altman Z-Score: A Breakdown of Key Drivers
A dissection of Hawaiian Electric Industries's Altman Z-score reveals Hawaiian Electric Industries's financial health may be weak, suggesting possible financial distress.
Conclusion: A Potential Value Trap
Despite the attractive valuation, the low Altman Z-score of Hawaiian Electric Industries suggests a potential value trap. Investors should consider this risk factor and conduct thorough due diligence before making an investment decision.
GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
This article first appeared on GuruFocus.
