Should You Be Adding Cencosud (SNSE:CENCOSUD) To Your Watchlist Today?

By
Simply Wall St
Published
March 15, 2022
SNSE:CENCOSUD
Source: Shutterstock

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Cencosud (SNSE:CENCOSUD). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Check out our latest analysis for Cencosud

How Quickly Is Cencosud Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That makes EPS growth an attractive quality for any company. Impressively, Cencosud has grown EPS by 35% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. The good news is that Cencosud is growing revenues, and EBIT margins improved by 4.2 percentage points to 9.5%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
SNSE:CENCOSUD Earnings and Revenue History March 15th 2022

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Cencosud's forecast profits?

Are Cencosud Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a CL$4.2t company like Cencosud. But we do take comfort from the fact that they are investors in the company. Indeed, they have a glittering mountain of wealth invested in it, currently valued at CL$640b. Coming in at 15% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.

Is Cencosud Worth Keeping An Eye On?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Cencosud's strong EPS growth. Further, the high level of insider ownership impresses me, and suggests that I'm not the only one who appreciates the EPS growth. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. Even so, be aware that Cencosud is showing 2 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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