Should You Think About Buying TOTVS S.A. (BVMF:TOTS3) Now?

Simply Wall St · 10/17 13:14

While TOTVS S.A. (BVMF:TOTS3) might not have the largest market cap around , it saw significant share price movement during recent months on the BOVESPA, rising to highs of R$31.60 and falling to the lows of R$26.98. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether TOTVS' current trading price of R$28.60 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at TOTVS’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for TOTVS

Is TOTVS Still Cheap?

According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 31.12x is currently trading slightly below its industry peers’ ratio of 31.55x, which means if you buy TOTVS today, you’d be paying a reasonable price for it. And if you believe that TOTVS should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, TOTVS’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

What does the future of TOTVS look like?

earnings-and-revenue-growth
BOVESPA:TOTS3 Earnings and Revenue Growth October 17th 2024

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. TOTVS' earnings over the next few years are expected to increase by 75%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in TOTS3’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at TOTS3? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on TOTS3, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for TOTS3, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Diving deeper into the forecasts for TOTVS mentioned earlier will help you understand how analysts view the stock going forward. So feel free to check out our free graph representing analyst forecasts.

If you are no longer interested in TOTVS, you can use our free platform to see our list of over 50 other stocks with a high growth potential.