Is Companhia Brasileira de Distribuição (BVMF:PCAR3) Potentially Undervalued?

While Companhia Brasileira de Distribuição (BVMF:PCAR3) 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$38.58 at one point, and dropping to the lows of R$23.69. 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 Companhia Brasileira de Distribuição's current trading price of R$25.90 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 Companhia Brasileira de Distribuição’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Companhia Brasileira de Distribuição

Is Companhia Brasileira de Distribuição still cheap?

According to my valuation model, Companhia Brasileira de Distribuição seems to be fairly priced at around 2.9% below my intrinsic value, which means if you buy Companhia Brasileira de Distribuição today, you’d be paying a fair price for it. And if you believe the company’s true value is R$26.68, then there isn’t much room for the share price grow beyond what it’s currently trading. In addition to this, Companhia Brasileira de Distribuição has a low beta, which suggests its share price is less volatile than the wider market.

What does the future of Companhia Brasileira de Distribuição 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 an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Companhia Brasileira de Distribuição, at least in the near future.

What this means for you:

Are you a shareholder? PCAR3 seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on PCAR3 for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which 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 crystalize your views on PCAR3 should the price fluctuate below its true value.

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. To help with this, we've discovered 5 warning signs (2 are potentially serious!) that you ought to be aware of before buying any shares in Companhia Brasileira de Distribuição.

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

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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