Why Positivo Tecnologia S.A. (BVMF:POSI3) Could Be Worth Watching

Positivo Tecnologia S.A. (BVMF:POSI3), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the BOVESPA over the last few months. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Positivo Tecnologia’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Positivo Tecnologia

Is Positivo Tecnologia still cheap?

Great news for investors – Positivo Tecnologia is still trading at a fairly cheap price according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Positivo Tecnologia’s ratio of 4.65x is below its peer average of 16.33x, which indicates the stock is trading at a lower price compared to the Tech industry. What’s more interesting is that, Positivo Tecnologia’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.

What does the future of Positivo Tecnologia look like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Though in the case of Positivo Tecnologia, it is expected to deliver a highly negative earnings growth in the upcoming, 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? Although POSI3 is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. Consider whether you want to increase your portfolio exposure to POSI3, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping tabs on POSI3 for some time, but hesitant on making the leap, I recommend you research further into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

So while earnings quality is important, it's equally important to consider the risks facing Positivo Tecnologia at this point in time. Every company has risks, and we've spotted 2 warning signs for Positivo Tecnologia (of which 1 makes us a bit uncomfortable!) you should know about.

If you are no longer interested in Positivo Tecnologia, 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.