Orbital Infrastructure Group: A Potential Value Trap?
Value-focused investors are always on the lookout for stocks that are priced below their intrinsic value. One such stock that merits attention is Orbital Infrastructure Group Inc (NASDAQ:OIG). Currently priced at $1.18, the stock recorded a day's loss of 34.18% and a 3-month decrease of 37.37%. The fair value, as indicated by its GF Value, is $12.22. However, a deeper analysis reveals that investing in Orbital Infrastructure Group might be riskier than it appears.
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 at which the stock should be traded. It is calculated based on historical multiples 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.
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.
Delving Deeper: The Risk Factors
Despite its seemingly attractive valuation, certain risk factors associated with Orbital Infrastructure Group should not be ignored. These risks are primarily reflected through its low Altman Z-score of -5.45. This indicator suggests that Orbital Infrastructure Group, 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
The Altman 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.
Orbital Infrastructure Group: A Snapshot
Orbital Infrastructure Group is a diversified infrastructure services platform, providing engineering, design, construction, and maintenance services to customers in three operating segments namely electric power, telecommunications, and renewables. Despite its diverse operations, the company's financial health appears to be in a precarious state, as reflected by its low Altman Z-score.
Breaking Down the Altman Z-Score
A dissection of Orbital Infrastructure Group's Altman Z-score reveals potential financial distress. The first factor to consider is a measure of short-term liquidity, calculated as the working capital divided by total assets. The data for 2021: -0.10; 2022: -0.33; 2023: -0.29, indicate a declining trend in Orbital Infrastructure Group's Working Capital to Total Assets ratio. This decline suggests potential liquidity issues, unfavorably influencing the overall Z-Score.
Conclusion: A Potential Value Trap
Despite its seemingly attractive valuation, Orbital Infrastructure Group presents significant risk factors that potential investors should consider. The company's low Altman Z-score suggests potential financial distress, making it a possible value trap. As always, thorough due diligence is essential before making any investment decision.
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This article first appeared on GuruFocus.
