Is Pieris Pharmaceuticals (PIRS) a Value Trap? A Comprehensive Analysis
Value-focused investors are constantly seeking stocks that are priced below their intrinsic value. Pieris Pharmaceuticals Inc (NASDAQ:PIRS) is one such stock that warrants attention. Currently priced at $0.49, the stock recorded a gain of 12.73% in a day and a 3-month decrease of 44.32%. According to its GF Value, the fair valuation of the stock is $1.62.
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.
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.
Unpacking the Risk Factors
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 Pieris Pharmaceuticals should not be ignored. These risks are primarily reflected through its low Piotroski F-score of 2, Altman Z-score of -4.53, and the company's revenues and earnings have been on a downward trend over the past five years, which raises a crucial question: Is Pieris Pharmaceuticals a hidden gem or a value trap?
The Piotroski F-Score
The Piotroski F-score, created by accounting professor Joseph Piotroski, is a tool used to assess the strength of a company's financial health. The score is based on nine criteria that fall into three categories: profitability, leverage/liquidity/ source of funds, and operating efficiency. The overall score ranges from 0 to 9, with higher scores indicating healthier financials. Pieris Pharmaceuticals's current Piotroski F-Score, however, falls in the lower end of this spectrum, indicating potential red flags for investors.
The Altman Z-Score
The Altman Z-score, invented by New York University Professor Edward I. Altman in 1968, 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.
Conclusion
Despite its low price relative to intrinsic value, Pieris Pharmaceuticals's falling revenues and earnings cast a long shadow over its investment attractiveness. Without a clear turnaround strategy, there's a risk that the company's performance could continue to deteriorate, leading to further price declines. In such a scenario, the low price-to-GF-Value ratio may be more indicative of a value trap than a value opportunity.
GuruFocus Premium members can find stocks with high Piotroski F-score using the following Screener: Piotroski F-score screener . GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen . Investors can find stocks with good revenue and earnings growth using GuruFocus' Peter Lynch Growth with Low Valuation Screener.
This article first appeared on GuruFocus.
