Over the past 12 months, interest rates in Brazil have risen significantly. As a result, the Ibovespa fell around 23%, and many stocks even more than that.. Some are even traded at less than their own equity. However, just looking at this metric can be an opportunity or a trap..
In this text, we list five companies with these characteristics – that is, which are currently trading less than their own equity – and the risks or opportunities related to each of them.
In accounting terms, a company’s equity is the sum of its assets minus its liabilities. Therefore, the company that is trading below its book value, in theory, can give an indication that it is cheap, thus constituting a good buying opportunity.
But we know that market participants are not fooled and that there is a narrative behind all these stories. As a result, some companies may trade below their equity as the market expects these companies to destroy value over time.
As we can see below, some institutions are trading for less than half their book value:
Perhaps one of the most curious cases is that of GetNinjas, a service company that has cash, less debt, of R$290 million and is valued at R$126 million on the stock exchange. It’s true: the company is worth less than the money it has stored in the bank. This is because the market expects GetNinjas to destroy value, i.e. the company’s operations will consume a large portion of this amount in a short period of time.
Usiminas and Gerdau, of the steel sector, suffer from the suspicion that a possible global recession will occur and that their products will be in less demand, driving down the price of their products and impacting their results.
Banco do Brasil, on the other hand, is controlled by the federal government and lives with suspicion of the risks of political intervention within the company. Finally, comes BRMalls, from the shopping center segment, one of the most impacted by the pandemic.
Based on these examples, which are not investment recommendations, we have seen that it is undeniable that there are many cheap stocks today. However, we cannot neglect the work of analysis before acquiring shares in a company. After all, by looking at simple metrics based on a specific indicator, one may be led to believe that a particular company would be a good investment simply because it is seemingly cheap.
This can lead the investor to fall into the so-called value trap (value trap), which occurs when a company is poorly managed or operates in the wrong segment and consumes the capital invested by the shareholder.
joao abdouniCNPI analyst at Inv Publications.
Remark: If you want to learn how to separate pitfalls from opportunities, know how to identify the true value of assets and understand which ones are worth investing in, you need to know the Valuation Total – Valor Além dos Números, a course taught by João Abdouni, CNPI analyst and stock market specialist at Inv Publications. Click here and check it out.
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