Is São Martinho S.A. (BVMF:SMTO3) Potentially Undervalued?

São Martinho S.A. (BVMF:SMTO3), 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. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s examine São Martinho’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for São Martinho

Is São Martinho still cheap?

The stock is currently trading at R$34.15 on the share market, which means it is overvalued by 23% compared to my intrinsic value of R$27.80. This means that the opportunity to buy São Martinho at a good price has disappeared! If you like the stock, you may want to keep an eye out for a potential price decline 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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will São Martinho generate?

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. With profit expected to grow by 51% over the next couple of years, the future seems bright for São Martinho. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

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 above its fair value. However, this brings up another question – is now the right time to sell? If you believe SMTO3 should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on SMTO3 for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for SMTO3, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

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. Every company has risks, and we've spotted 4 warning signs for São Martinho you should know about.

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.

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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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