Is Now The Time To Look At Buying São Martinho S.A. (BVMF:SMTO3)?

São Martinho S.A. (BVMF:SMTO3), might not be a large cap stock, but it saw a decent share price growth in the teens level on the BOVESPA over the last few months. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s take a look at São Martinho’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for São Martinho

What is São Martinho worth?

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. 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 São Martinho’s ratio of 12.66x is trading slightly below its industry peers’ ratio of 14.19x, which means if you buy São Martinho today, you’d be paying a reasonable price for it. And if you believe that São Martinho should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Is there another opportunity to buy low in the future? Since São Martinho’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 São Martinho generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. However, with a relatively muted profit growth of 8.6% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for São Martinho, at least in the short term.

What this means for you:

Are you a shareholder? SMTO3’s future growth appears to have been factored into the current share price, 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 SMTO3? 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 an eye on SMTO3, now may not be the most optimal 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 São Martinho, you'd also look into what risks it is currently facing. While conducting our analysis, we found that São Martinho has 4 warning signs and it would be unwise to ignore them.

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This article by Simply Wall St is general in nature. 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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