What Does Guararapes Confecções S.A.'s (BVMF:GUAR3) Share Price Indicate?

Guararapes Confecções S.A. (BVMF:GUAR3), is not the largest company out there, but 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 Guararapes Confecções’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for Guararapes Confecções

What Is Guararapes Confecções Worth?

According to my valuation model, Guararapes Confecções seems to be fairly priced at around 2.9% below my intrinsic value, which means if you buy Guararapes Confecções today, you’d be paying a reasonable price for it. And if you believe the company’s true value is R$7.66, then there isn’t much room for the share price grow beyond what it’s currently trading. In addition to this, Guararapes Confecções has a low beta, which suggests its share price is less volatile than the wider market.

What does the future of Guararapes Confecções look like?

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. Guararapes Confecções' revenue growth are expected to be in the teens in the upcoming year, indicating a solid future ahead. Unless expenses grow at the same level, or higher, this top-line growth should lead to robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in GUAR3’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. 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 GUAR3, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook 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.

So while earnings quality is important, it's equally important to consider the risks facing Guararapes Confecções at this point in time. Case in point: We've spotted 2 warning signs for Guararapes Confecções you should be aware of.

If you are no longer interested in Guararapes Confecções, 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.