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

While Guararapes Confecções S.A. (BVMF:GUAR3) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the BOVESPA over the last few months, increasing to R$22.90 at one point, and dropping to the lows of R$16.48. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Guararapes Confecções' current trading price of R$16.48 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Guararapes Confecções’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Guararapes Confecções

Is Guararapes Confecções still cheap?

Guararapes Confecções is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Guararapes Confecções’s ratio of 31.91x is above its peer average of 26.11x, which suggests the stock is trading at a higher price compared to the Luxury industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since Guararapes Confecções’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. 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 Guararapes Confecções generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to more than double over the next couple of years, the future seems bright for Guararapes Confecções. 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? It seems like the market has well and truly priced in GUAR3’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe GUAR3 should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on GUAR3 for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for GUAR3, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into Guararapes Confecções, you'd also look into what risks it is currently facing. When we did our research, we found 4 warning signs for Guararapes Confecções (1 can't be ignored!) that we believe deserve your full attention.

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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.
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