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Is My Size (MYSZ) Too Good to Be True? A Comprehensive Analysis of a Potential Value Trap

Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is My Size Inc (NASDAQ:MYSZ). The stock, which is currently priced at 2.17, recorded a gain of 17.03% in a day and a 3-month increase of 73.58%. The stock's fair valuation is $85.87, 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.

Is My Size (MYSZ) Too Good to Be True? A Comprehensive Analysis of a Potential Value Trap
Is My Size (MYSZ) Too Good to Be True? A Comprehensive Analysis of a Potential Value Trap

Identifying Potential 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 My Size should not be ignored. These risks are primarily reflected through its low Altman Z-score of -13.27, and a Beneish M-Score of 5.84 that exceeds -1.78, the threshold for potential earnings manipulation. These indicators suggest that My Size, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.

Unpacking the Altman Z-score and Beneish M-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.

Developed by Professor Messod Beneish, the Beneish M-Score is based on eight financial variables that reflect different aspects of a company's financial performance and position. These are Days Sales Outstanding (DSO), Gross Margin (GM), Total Long-term Assets Less Property, Plant and Equipment over Total Assets (TATA), change in Revenue (?REV), change in Depreciation and Amortization (?DA), change in Selling, General and Admin expenses (?SGA), change in Debt-to-Asset Ratio (?LVG), and Net Income Less Non-Operating Income and Cash Flow from Operations over Total Assets (?NOATA).

A Closer Look at My Size Inc (NASDAQ:MYSZ)

My Size Inc is a US-based technology company that focuses on the development of an application that assists the consumer to accurately take the measurements of his or her own body to fit clothing in the best way possible without the need to try them on using a smartphone. The purpose of the company's business is to simplify the process of clothing acquisition through the Internet and to significantly reduce the rate of returns of clothing which were acquired through the internet and which are returned to the stores because of ill-fitting. The company generates its revenue through selling products to customers, and licensing cloud-enabled software subscriptions, associated software maintenance and support.

Is My Size (MYSZ) Too Good to Be True? A Comprehensive Analysis of a Potential Value Trap
Is My Size (MYSZ) Too Good to Be True? A Comprehensive Analysis of a Potential Value Trap

Deciphering My Size's Low Altman Z-Score

A dissection of My Size's Altman Z-score reveals My Size's financial health may be weak, suggesting possible financial distress:

The first factor we need to consider is a measure of short-term liquidity. This is calculated as the working capital divided by total assets. When we evaluate the data provided: 2021: 0.90; 2022: 0.39; 2023: -0.09, it's clear that My Size has experienced a declining trend in its Working Capital to Total Assets ratio over the past few years. This decline suggests potential liquidity issues that the company may be facing. The ratio is strikingly low, which unfavorably influences the overall Z-Score.

Gross Margin and Asset Quality Concerns

The Gross Margin index tracks the evolution of a company's gross profit as a proportion of its revenue. A downward trend could indicate issues such as overproduction or more generous credit terms, both of which are potential red flags for earnings manipulation. By examining the past three years of My Size's historical data (2021: 0; 2022: 43.88; 2023: 4.75), we find that its Gross Margin has contracted by 73.03%. Such a contraction in the gross margin can negatively impact the company's profitability as it signifies lesser income from each dollar of sales. This could put a strain on the company's capacity to manage operating costs, potentially undermining its financial stability.

The asset quality ratio, calculated as Total Long-term Assets minus Property, Plant, and Equipment, divided by Total Assets, gauges the proportion of intangible or less tangible assets within a company's asset structure. Analyzing My Size's asset quality ratio over the past three years (2021: 0.01; 2022: 0.07; 2023: 0.38), an increase might signal underlying issues, such as capitalizing normal operating expenses or goodwill impairment. These factors can inflate assets and mask true operational costs, potentially misrepresenting the company's actual financial position, and raising concerns for investors about its true value and risk profile.

Year-Over-Year Change in Revenue

The Year-Over-Year (YoY) change in Revenue calculates the percentage difference in sales between the previous year and the current year. A notable upswing in this ratio could potentially signal aggressive income recognition or sales manipulation tactics. Delving into My Size's revenue data over the past three years (2021: 0.15; 2022: 0.98; 2023: 5.26), it's apparent that there has been a significant surge in revenue in the last 12 months, with a rise of 553.33 %.

Is My Size (MYSZ) Too Good to Be True? A Comprehensive Analysis of a Potential Value Trap
Is My Size (MYSZ) Too Good to Be True? A Comprehensive Analysis of a Potential Value Trap

Conclusion: Unmasking the Value Trap

In conclusion, despite the seemingly attractive valuation of My Size (NASDAQ:MYSZ), the company exhibits several risk factors that suggest it could be a potential value trap. The low Altman Z-Score, high Beneish M-Score, and concerning financial ratios indicate possible financial distress and potential earnings manipulation. Therefore, thorough due diligence is crucial before making an investment decision.

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This article first appeared on GuruFocus.