The stock of Atacadao SA (BSP:CRFB3, 30-year Financials) appears to be modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of BRL 20.44 per share and the market cap of BRL 40.6 billion, Atacadao SA stock is estimated to be modestly undervalued. GF Value for Atacadao SA is shown in the chart below.
Because Atacadao SA is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 10% over the past three years and is estimated to grow 12.90% annually over the next three to five years.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Atacadao SA has a cash-to-debt ratio of 0.07, which is worse than 89% of the companies in the industry of Retail - Defensive. The overall financial strength of Atacadao SA is 4 out of 10, which indicates that the financial strength of Atacadao SA is poor. This is the debt and cash of Atacadao SA over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Atacadao SA has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of BRL 73.1 billion and earnings of BRL 1.64 a share. Its operating margin is 6.13%, which ranks better than 79% of the companies in the industry of Retail - Defensive. Overall, GuruFocus ranks the profitability of Atacadao SA at 6 out of 10, which indicates fair profitability. This is the revenue and net income of Atacadao SA over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Atacadao SA is 10%, which ranks better than 78% of the companies in the industry of Retail - Defensive. The 3-year average EBITDA growth rate is 7.4%, which ranks in the middle range of the companies in the industry of Retail - Defensive.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Atacadao SA's ROIC was 9.82, while its WACC came in at 3.22. The historical ROIC vs WACC comparison of Atacadao SA is shown below:
In short, the stock of Atacadao SA (BSP:CRFB3, 30-year Financials) gives every indication of being modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Retail - Defensive. To learn more about Atacadao SA stock, you can check out its 30-year Financials here.
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