As of July 18, 2023, KeyCorp (KEY, Financial) has been under the spotlight due to its recent price change. The stock is currently trading at $10.71, showing a change of 4.08% for the day. With a market cap of $10 billion and sales of $7.1 billion, the company's financial metrics are noteworthy. However, the GF Value of $18.88 suggests that the stock might be a potential value trap, warranting a closer look.
KeyCorp, with assets exceeding $170 billion, operates out of Ohio and has a significant presence across 16 states. The bank primarily serves middle-market commercial clients through a hybrid community/corporate bank model, with its largest markets being Ohio and New York.
GF Value and Stock Valuation
The GF Value of a stock is a unique indicator of its intrinsic worth, calculated based on historical trading multiples, an adjustment factor from GuruFocus, and estimates of future business performance. For KeyCorp (KEY, Financial), the GF Value stands at $18.88, suggesting that the stock might be a potential value trap at its current price of $10.71 per share.
The reason for this valuation is the company's low Piotroski F-score of 3 out of 9, indicating declining performance in profitability, funding, and efficiency. Investors are advised to look beyond the low valuation and ensure there are no long-term risks. More information about the Piotroski F-score can be found here.
Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy its stock. KeyCorp's cash-to-debt ratio of 0.02 is worse than 98.17% of companies in the Banks industry, indicating poor financial strength.
Profitability
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. KeyCorp has been profitable for 10 out of the past 10 years. However, its operating margin of 0% ranks worse than other companies in the Banks industry, indicating fair profitability.
Growth
Growth is a crucial factor in a company's valuation. KeyCorp's 3-year average annual revenue growth rate is 6.9%, which is better than 53.53% of companies in the Banks industry. However, its 3-year average EBITDA growth rate is 0%, ranking worse than other companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. Over the past 12 months, KeyCorp’s ROIC was 0, while its WACC came in at 5.5, indicating that the company may not be creating value for shareholders.
Conclusion
In conclusion, KeyCorp (KEY, Financial) appears to be a potential value trap. Despite its fair profitability and growth, the company's poor financial condition raises concerns. For a deeper understanding of KeyCorp's financials, you can check its 30-Year Financials here.
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