Is Now An Opportune Moment To Examine Energisa S.A. (BVMF:ENGI3)?

Energisa S.A. (BVMF:ENGI3), is not the largest company out there, but it led the BOVESPA gainers with a relatively large price hike in the past couple of weeks. 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. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Energisa’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Energisa

Is Energisa still cheap?

Energisa appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and 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 Energisa’s ratio of 21.18x is above its peer average of 10.87x, which suggests the stock is trading at a higher price compared to the Electric Utilities industry. But, is there another opportunity to buy low in the future? Since Energisa’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 Energisa?

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 Energisa, it is expected to deliver a negative earnings growth of -4.1%, 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? If you believe ENGI3 should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. Given the uncertainty from negative growth in the future, this could be the right time to de-risk your portfolio. 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 tabs on ENGI3 for some time, now may not be the best time to enter into the stock. Its price has risen beyond its industry peers, on top of a negative future outlook. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Should the price fall in the future, will you be well-informed enough to buy?

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. While conducting our analysis, we found that Energisa has 2 warning signs and it would be unwise to ignore them.

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This article by Simply Wall St is general in nature. 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.
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