Is Now The Time To Look At Buying Veste S.A. Estilo (BVMF:VSTE3)?

While Veste S.A. Estilo (BVMF:VSTE3) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the BOVESPA, rising to highs of R$19.50 and falling to the lows of R$14.40. 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 Veste Estilo's current trading price of R$15.15 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 Veste Estilo’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Veste Estilo

What's The Opportunity In Veste Estilo?

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 10.12x is currently trading slightly above its industry peers’ ratio of 9.83x, which means if you buy Veste Estilo today, you’d be paying a relatively sensible price for it. And if you believe that Veste Estilo should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Although, there may be an opportunity to buy in the future. This is because Veste Estilo’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What does the future of Veste Estilo 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. 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 negative profit growth of -3.6% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Veste Estilo. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? VSTE3 seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on VSTE3, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on VSTE3 for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on VSTE3 should the price fluctuate below the industry PE ratio.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Case in point: We've spotted 3 warning signs for Veste Estilo you should be mindful of and 1 of these is significant.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.