Is Lojas Renner S.A. (BVMF:LREN3) Potentially Undervalued?

Lojas Renner S.A. (BVMF:LREN3), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the BOVESPA. 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 Lojas Renner’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Lojas Renner

What is Lojas Renner worth?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 0.8% below my intrinsic value, which means if you buy Lojas Renner today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth R$25.68, then there isn’t much room for the share price grow beyond what it’s currently trading. In addition to this, Lojas Renner has a low beta, which suggests its share price is less volatile than the wider market.

What does the future of Lojas Renner look like?

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. Lojas Renner's earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? LREN3’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. 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 the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping an eye on LREN3, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 3 warning signs for Lojas Renner you should know about.

If you are no longer interested in Lojas Renner, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.