Is Nexstar Media Group (NXST) 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 Nexstar Media Group Inc (NASDAQ:NXST). The stock, which is currently priced at 141.96, recorded a loss of 5.97% in a day and a 3-month decrease of 11.86%. The stock's fair valuation is $202.52, 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.
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.
The Complexity of Value Investing: A Closer Look at Nexstar Media Group (NASDAQ:NXST)
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 Nexstar Media Group should not be ignored. These risks are primarily reflected through its low Altman Z-score of 1.52, and These indicators suggest that Nexstar Media Group, 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.
Company Profile: Nexstar Media Group Inc (NASDAQ:NXST)
Nexstar is the largest television station owner/operator in the United States, with 199 stations in 116 markets. Of its 199 full-power stations, 155 are affiliated with the four national broadcasters: CBS, Fox, NBC, and ABC. The 2019 merger with Tribune made Nexstar the top broadcast affiliate for both Fox and CBS as well as the number-two partner for NBC and number three for ABC. The firm has networks in 12 of the top 20 television markets and reaches over 68% of U.S. TV households. Nexstar also owns NewsNation (formerly WGN), a nationwide pay-television network, 75% of The CW, and a 31% stake in Food Network and Cooking Channel.
Unpacking Nexstar Media Group's Low Altman Z-Score
A dissection of Nexstar Media Group's Altman Z-score reveals Nexstar Media Group's financial health may be weak, suggesting possible financial distress.
Conclusion: Nexstar Media Group (NASDAQ:NXST) - A Potential Value Trap?
Despite its seemingly attractive valuation, the low Altman Z-Score of Nexstar Media Group indicates potential financial distress, suggesting that the company might be a value trap. Investors should, therefore, exercise caution and conduct thorough due diligence before investing in Nexstar Media Group.
GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
This article first appeared on GuruFocus.
