As you may have noticed, the actions of the Magazine Luiza (MGLU3) are in decline. In one year, between January 2021 and January 2022, the retailer recorded a “fall” of -75% in the papers. After all, what happened to Magalu?
Investor affection for MGLU3 shares is not new. And no wonder: the company was responsible for delivering what was perhaps one of the most expressive valuations that the Brazilian stock market has ever seen. Who invested in it just under 6 years ago, for example, and held the papers until mid-2020, today can easily be considered a millionaire.
I say this because in 2015, during the crisis, the share came to cost BRL 0.03, that is, three cents. But, in a period of “mere” 5 years, Magalu took off, reaching R$ 27.42, the historical maximum for the shares. In practice, this means a appreciation of 91,300%.
Putting it on the tip of the pencil, it was enough BRL 1,100 invested so that you accumulate the amount of BRL 1,005,400that is, become a millionaire in just under 6 years.
To give you an idea of the relevance that Magazine Luiza acquired during the period, he was responsible for enshrining the alaska blackAlaska Asset stock fund, as one of the most famous and profitable today.
All because the fund focused on MGLU3 stocks right when it was founded, in 2017, taking a good part of the valuation of the shares until the end of 2020.
But such appreciation of Magalu’s shares was only possible, mainly, for two reasons:
- The digital retail boom, driven by the coronavirus pandemic, when several retailers had to migrate to e-commerce so they could continue selling their products; and
- The macroeconomic scenario, with very low interest rates and practically non-existent inflation, which made room for companies with long-term growth prospects to grow quickly. This was the case with Magalu and its digital transformation plan.
In this context, Magazine Luiza had room to triple its e-commerce and quadruple its marketplace, making it one of the fastest growing retailers in the pandemic period. There were 18 acquisitions between content portals, apps, finance and logistics startups, creating a complete online sales ecosystem.
Nonetheless, now the game has turned and it seems that the retailer’s action has returned to being a “ugly duckling”. For the investor, it is important to know if the drop is momentary, which opens up a buying opportunity, or if it is really time to give up the shares.
What to do with MGLU3 shares with a ‘tumbling’ of 75% in 1 year?
As if the “fall” that Magalu’s action took in the last year wasn’t enough, the company also announced weak results in the 4th quarter of 2021. The reason is that all the growth achieved by the company during the pandemic was not accompanied by the increase in profitability.
See: while on the one hand the retailer’s e-commerce took off, on the other there was a loss of vigor in physical stores, which historically were the drivers of Magalu’s profitability. Physical sales dropped 23%, which was directly reflected in the company’s margins.
With that, the EBITDA (earnings before interest, taxes, depreciation and amortization), an indicator that measures the business’ cash flow, was negative by R$8 million. And the consequence is that, despite the fact that the shares have fallen drastically in recent months, today some analysts still consider that the shares of the Magazine Luiza are too expensive.
One of those who is convinced of this is Fernando Ferrerstock analyst at empiricus, the largest independent financial analysis house in the country. He reached this conclusion by analyzing the indicator Price over Profit of the company’s shares, the most used by the financial market to say if an asset is expensive or cheap.
The indicator calculates how many times the market value of a company is traded in relation to the estimated profit of the next 12 months. The smaller this ratio, the cheaper a stock is. But as you can see in the chart below, when we talk about Magazine Luiza, this indicator is at the top:
It is for this reason that Ferrer no longer believes that it is worth investing in Magazine Luiza shares. In his analysis, Magalu no longer fits as an asset of “quality”, title given to shares of companies that already have good results, generate cash and have good corporate governance, to be an asset of “growth” (a promise of future growth and profits).
In practice, this means that the retailer is seen today as a company still in the growth phase, with extended cash flows and, mainly, that does not benefit from the current economic scenario, from high interest.
In the company’s last earnings conference call, the challenging context was highlighted. And, for Ferrer, it must remain that way, at least for a while, for 3 reasons:
- E-commerce slowdownin particular electronics and home appliances;
- greater competition between national and international players;
- Difficulty in maintaining margins due to greater competition and lower customer appetite.
“Even after the sharp drop in shares, the challenging scenario should put even more pressure on the company’s results, making the valuation more expensive and making the share less attractive”, explains Fernando Ferrer.
Time to ‘jump out’ of Magalu? For this analyst, yes
In summary, it’s time to sell MGLU3 shares. But wait, that’s not all. What I have just told you is a summary of what the analyst wrote in a report published to the subscribers of the portfolio called “Best Stocks on the Stock Exchange”.
It is a portfolio of shares commanded by Fernando Ferrer with indications of shares of Brazilian companies that, in his analysis, are real opportunities. As you have just seen, Magazine Luiza can no longer be considered one of the Best on the Stock Exchange.
However, when he published the report, the analyst made a second recommendation. In addition to selling the MGLU3 shares, he also directed his followers to buy the shares of a company in the electricity sector.
The retailer’s departure for an electric power company makes sense. Given the current macroeconomic scenario, Fernando Ferrer sees that it makes sense bet on more consolidated companies on the market and, above all, more resilient to times of crisis like what’s happening right now.
“The strategy aims to reduce portfolio risks, given the macroeconomic uncertainties and bottlenecks present in the local economy”, explains the analyst.
In his assessment, this company in the electricity sector have a stable business modelpredictable and profitable, It’s the cheapest in its segment. and, above all, it has the potential to be a great dividend payer in 2022 as well as in the coming years.
The good news is that Fernando Ferrer has made the report in which he talks best about this company public. That is, you can access it without being a subscriber to his wallet, completely free of charge. To do so, simply enter a valid email address to receive it on the page below:
Bye, Magazine Luiza: discover the action of an energy company that is worth investing in now
In this free report, Fernando Ferrer explains why he doesn’t see more potential in Magazine Luiza’s actions. In addition, the analyst recommends buying the shares of a company in the electricity sector that is cheap, resilient to the crisis and can pay good dividends this year.
Don’t worry, access to the report is free. No cents will be charged so you can read the complete thesis on Magazine Luiza and Ferrer’s new purchase recommendation.
And, if you are in doubt as to Fernando’s property in talking about it, don’t worry. In addition to a degree in Mechanical Engineering and an MBA in Finance, he is responsible for one of Empiricus’ most famous equity portfolios.
As previously mentioned, the portfolio of “Best Shares on the Stock Exchange” is responsible for panning among the more than 400 shares listed on the Brazilian stock exchange behind “bargains” in the relationship between price and value.
So, do you want to know the new Best Share on the Stock Market recommended by the analyst?
For this, I advise you to release your free access to the report using the button below. Just put a valid email to receive it and wait for it in your inbox:
Source: Moneytimes
I am an author at Global happenings and I mostly cover automobile news. In my time working in the automotive industry, I have developed a keen interest in the latest developments and trends. My writing skills have also allowed me to share my knowledge with others through articles and blog posts.
