Is Energisa S.A. (BVMF:ENGI3) Potentially Undervalued?

Energisa S.A. (BVMF:ENGI3), is not the largest company out there, but it saw a decent share price growth in the teens level on the BOVESPA over the last few months. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at Energisa’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Energisa

Is Energisa Still Cheap?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 14% below my intrinsic value, which means if you buy Energisa today, you’d be paying a reasonable price for it. And if you believe the company’s true value is R$15.97, then there isn’t much room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that Energisa’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of Energisa look like?

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. However, with a negative profit growth of -13% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Energisa. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Currently, ENGI3 appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on ENGI3 for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on ENGI3 should the price fluctuate below its true value.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've found that Energisa has 2 warning signs (1 doesn't sit too well with us!) that deserve your attention before going any further with your analysis.

If you are no longer interested in Energisa, 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.