Is Petrobras Distribuidora S.A. (BVMF:BRDT3) Potentially Undervalued?

Petrobras Distribuidora S.A. (BVMF:BRDT3), might not be a large cap stock, but it saw significant share price movement during recent months on the BOVESPA, rising to highs of R$29.46 and falling to the lows of R$23.75. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Petrobras Distribuidora's current trading price of R$23.75 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Petrobras Distribuidora’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Petrobras Distribuidora

What's the opportunity in Petrobras Distribuidora?

The stock is currently trading at R$23.75 on the share market, which means it is overvalued by 33% compared to my intrinsic value of R$17.79. This means that the buying opportunity has probably disappeared for now. In addition to this, it seems like Petrobras Distribuidora’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, 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 Petrobras Distribuidora 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. Though in the case of Petrobras Distribuidora, it is expected to deliver a highly negative earnings growth in the next few years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? If you believe BRDT3 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. Given the risk from a negative growth outlook, this could be the right time to de-risk your portfolio. 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 tabs on BRDT3 for some time, now may not be the best time to enter into the stock. Its price has risen beyond its true value, on top of a negative future outlook. However, there are also other important factors which we haven’t considered today, such as the track record of its management. Should the price fall in the future, will you be well-informed enough to buy?

So while earnings quality is important, it's equally important to consider the risks facing Petrobras Distribuidora at this point in time. To help with this, we've discovered 4 warning signs (3 are potentially serious!) that you ought to be aware of before buying any shares in Petrobras Distribuidora.

If you are no longer interested in Petrobras Distribuidora, 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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