Should You Investigate Valid Soluções S.A. (BVMF:VLID3) At R$8.84?

While Valid Soluções S.A. (BVMF:VLID3) might not be the most widely known stock at the moment, it led the BOVESPA gainers with a relatively large price hike in the past couple of weeks. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at Valid Soluções’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Valid Soluções

What's the opportunity in Valid Soluções?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 11% below my intrinsic value, which means if you buy Valid Soluções today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth R$9.90, then there’s not much of an upside to gain from mispricing. Is there another opportunity to buy low in the future? Since Valid Soluções’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will Valid Soluções generate?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With revenues expected to grow by a double-digit 17% over the next couple of years, the outlook is positive for Valid Soluções. If the level of expenses is able to be maintained, it looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? VLID3’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping an eye on VLID3, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you'd like to know more about Valid Soluções as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for Valid Soluções you should be mindful of and 1 of them is concerning.

If you are no longer interested in Valid Soluções, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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