Is It Time To Consider Buying Lojas Quero-Quero S.A. (BVMF:LJQQ3)?

Lojas Quero-Quero S.A. (BVMF:LJQQ3), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the BOVESPA over the last few months, increasing to R$4.14 at one point, and dropping to the lows of R$2.24. 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 Lojas Quero-Quero's current trading price of R$2.24 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Lojas Quero-Quero’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Lojas Quero-Quero

What Is Lojas Quero-Quero Worth?

According to our 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, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Lojas Quero-Quero’s ratio of 8.08x is trading slightly below its industry peers’ ratio of 8.08x, which means if you buy Lojas Quero-Quero today, you’d be paying a decent price for it. And if you believe that Lojas Quero-Quero 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. Furthermore, Lojas Quero-Quero’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

Can we expect growth from Lojas Quero-Quero?

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. With profit expected to grow by 96% over the next couple of years, the future seems bright for Lojas Quero-Quero. 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? It seems like the market has already priced in LJQQ3’s positive outlook, with shares trading around industry price multiples. 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 LJQQ3? 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 tabs on LJQQ3, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for LJQQ3, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 5 warning signs for Lojas Quero-Quero you should be mindful of and 1 of these shouldn't be ignored.

If you are no longer interested in Lojas Quero-Quero, 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.