Is It Time To Consider Buying Magazine Luiza S.A. (BVMF:MGLU3)?

Magazine Luiza S.A. (BVMF:MGLU3), might not be a large cap stock, but it led the BOVESPA gainers with a relatively large price hike in the past couple of weeks. 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. However, what if the stock is still a bargain? Today I will analyse the most recent data on Magazine Luiza’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Magazine Luiza

What's The Opportunity In Magazine Luiza?

Magazine Luiza appears to be overvalued by 27% at the moment, based on my discounted cash flow valuation. The stock is currently priced at R$2.17 on the market compared to my intrinsic value of R$1.70. This means that the opportunity to buy Magazine Luiza at a good price has disappeared! But, is there another opportunity to buy low in the future? Since Magazine Luiza’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from Magazine Luiza?

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. With revenues expected to grow by a double-digit 26% over the next couple of years, the outlook is positive for Magazine Luiza. If the level of expenses is able to be maintained, 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? MGLU3’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe MGLU3 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 MGLU3 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 MGLU3, 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. You'd be interested to know, that we found 2 warning signs for Magazine Luiza and you'll want to know about them.

If you are no longer interested in Magazine Luiza, 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.