Is Magazine Luiza S.A. (BVMF:MGLU3) Potentially Undervalued?

Magazine Luiza S.A. (BVMF:MGLU3), might not be a large cap stock, but it saw a significant share price rise of 37% in the past couple of months on the BOVESPA. While good news for shareholders, the company has traded much higher in the past year. With many analysts covering the 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? Let’s take a look at Magazine Luiza’s outlook and value based on the most recent financial data to see if the opportunity still exists.

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Is Magazine Luiza Still Cheap?

Great news for investors – Magazine Luiza is still trading at a fairly cheap price. According to our valuation, the intrinsic value for the stock is R$12.46, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. What’s more interesting is that, Magazine Luiza’s share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. 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.

Check out our latest analysis for Magazine Luiza

Can we expect growth from Magazine Luiza?

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. Magazine Luiza'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? Since MGLU3 is currently undervalued, it may be a great time to accumulate more of your holdings in the stock. With an optimistic outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current undervaluation.

Are you a potential investor? If you’ve been keeping an eye on MGLU3 for a while, now might be the time to make a leap. Its prosperous future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy MGLU3. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed buy.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - Magazine Luiza has 3 warning signs we think you should be aware of.

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.