Why Guararapes Confecções S.A. (BVMF:GUAR3) Could Be Worth Watching

While Guararapes Confecções S.A. (BVMF:GUAR3) might not be the most widely known stock at the moment, it saw a significant share price rise of over 20% in the past couple of months on the BOVESPA. 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.

See our latest analysis for Guararapes Confecções

What's The Opportunity In Guararapes Confecções?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 8.27x is currently trading slightly above its industry peers’ ratio of 8.2x, which means if you buy Guararapes Confecções today, you’d be paying a relatively sensible price for it. And if you believe that Guararapes Confecções should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Is there another opportunity to buy low in the future? Since Guararapes Confecções’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 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. However, with a relatively muted profit growth of 8.1% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Guararapes Confecções, at least in the short term.

What This Means For You

Are you a shareholder? It seems like the market has already priced in GUAR3’s growth outlook, with shares trading around industry price multiples. 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 GUAR3? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on GUAR3, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean 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. For example, we've discovered 3 warning signs that you should run your eye over to get a better picture of Guararapes Confecções.

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.