When Should You Buy Companhia Brasileira de Distribuição (BVMF:PCAR3)?

Companhia Brasileira de Distribuição (BVMF:PCAR3), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the BOVESPA. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an 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 the opportunity still exists.

View our latest analysis for Companhia Brasileira de Distribuição

What's the opportunity in Companhia Brasileira de Distribuição?

Great news for investors – Companhia Brasileira de Distribuição is still trading at a fairly cheap price according to my price multiple model, where I compare the company's price-to-earnings ratio 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 Companhia Brasileira de Distribuição’s ratio of 4.33x is below its peer average of 19.43x, which indicates the stock is trading at a lower price compared to the Consumer Retailing industry. What’s more interesting is that, Companhia Brasileira de Distribuição’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to move closer to its industry peers, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will Companhia Brasileira de Distribuição 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 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? Although PCAR3 is currently trading below the industry PE ratio, the negative profit outlook does bring on some uncertainty, which equates to higher risk. Consider whether you want to increase your portfolio exposure to PCAR3, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping tabs on PCAR3 for some time, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 2 warning signs for Companhia Brasileira de Distribuição (of which 1 doesn't sit too well with us!) you should know about.

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.

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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.