ROE: 26%
Net Margin: 17%
The numbers are recurrent and the company has a promisor growth prospect.
It's look like a nice company, don't you think?
Now, consider these another multiples:
P/E: 34.5
Yield: 2.9%
Would you invest in this company?
I particularly won't. Despite being an excelent company, it's a bad investment because it's seems overvaluated.
Now I will say to you: this hypothetical company is RDCD3, supposing its earnings had dropped 2/3, to just BRL 440 millions.
Look, I'm not saying that this will occur, but if it does, Redecard will still be a nice and admirable company. One of the best available to invest.
But how should be then the price to Redecard become a good investment?
Probably about half current price, what would give P/E of 17.3 and yield 5.8%.
In short: if earnings of Redecard goes down further, it still will be a profitable company and a nice investment, but a lower price than today.
2 comments:
I still have no reasons to believe that RDCD or CIEL's earnings may fall by 50%. It's no easy task to a new incumbent to establish himself on this market. Imagine the economies os scale of this game. Size matters! That's why I choose CIEL over RDCD. And big parents too (another reason to choose CIEL).
I can imagine their profits stagnating, but not droping while the market is still growing 20% to 30% a year.
MDR has fallen 20% in one year (from 1.40% from 1.13%) and no new player has come yet.
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