At R$37.74, Is It Time To Put São Martinho S.A. (BVMF:SMTO3) On Your Watch List?

São Martinho S.A. (BVMF:SMTO3), might not be a large cap stock, but it led the BOVESPA gainers with a relatively large price hike in the past couple of weeks. With many analysts covering the mid-cap 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? Today I will analyse the most recent data on São Martinho’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for São Martinho

What is São Martinho worth?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 11.85% above my intrinsic value, which means if you buy São Martinho today, you’d be paying a relatively fair price for it. And if you believe that the stock is really worth R$33.74, there’s only an insignificant downside when the price falls to its real value. So, is there another chance to buy low in the future? Given that São Martinho’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from São Martinho?

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. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. São Martinho's earnings over the next few years are expected to increase by 25%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? SMTO3’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping tabs on SMTO3, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you'd like to know more about São Martinho as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 4 warning signs for São Martinho and you'll want to know about them.

If you are no longer interested in São Martinho, 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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