Should You Think About Buying São Martinho S.A. (BVMF:SMTO3) Now?

São Martinho S.A. (BVMF:SMTO3), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the BOVESPA over the last few months. 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? Let’s examine São Martinho’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for São Martinho

Is São Martinho still cheap?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 7.9% below my intrinsic value, which means if you buy São Martinho today, you’d be paying a reasonable price for it. And if you believe the company’s true value is R$48.85, then there isn’t much room for the share price grow beyond what it’s currently trading. 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. However, with a negative profit growth of -0.6% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for São Martinho. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Currently, SMTO3 appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal 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 SMTO3 for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The stock appears 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 gel your views on SMTO3 should the price fluctuate below its true value.

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. When we did our research, we found 4 warning signs for São Martinho (1 is a bit concerning!) that we believe deserve your full attention.

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. 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.