O Magazine Luiza (MLGU3) doesn’t have a good time when it comes to market value. According to data from economics, the company, until then a darling among investors, lost R$ 116.7 billion since the peak of November 5, 2020. The share melted over 60% in that period.
For comparison purposes, on the last 17th of November, the Santander (SANB11) was worth R$127.6 billion on the market.
Aside from the bitter taste, Magazine Luiza’s investors are now wondering what to do with the stock: sell and avoid further damage, or keep the stock and hope for an appreciation in 2022?
Thinking about it, the Money Times he listened to analysts and economists to understand the company’s future in a 2022 that looks worse than this year, with high inflation, low growth and, in the middle of it all, a presidential election.
Third quarter numbers
Despite the precipitous drop in recent months, Magalu is still considered a success story. In the last five years, the company has accumulated an increase of 2,365%, going from the level of R$ 0.38 to the current R$9.37. On the way, the action left the microcaps level to reach the status of one of the members of the Ibovespa, with a 2.3% share. As a comparison, just remember that Santander represents only 0.61% of the index.
In the view of Vitor Miziara, a partner at Critéria Investimentos, the company, even with the fall, is still an expensive role, far above other companies in the sector.
“Magalu was expensive, because growth expectations were accelerating, people were buying the appreciation of the shares, more than the results themselves. Now, for next year, this growth was in check”, he says.
Alexsandro Nishimura, economist and head of content at BRA, adds that, for an action that “accustomed” investors to leading the year’s earnings, it is impressive to see Magalu lose more than 60% of its value.
He also claims that the current national macroeconomic scenario, with a high level of inflation, interest rate and unemployment, takes the retail sector in full, as it affects the consumption and purchasing power of families.
“In the balance of the third quarter, the macro deterioration began to appear, as some analysts pointed out, due to the weak performance of physical retail, cash consumption to strengthen inventories and pressured profitability”, he adds.
Despite this, Gustavo Cruz, economist and strategist at RB Investimentos, says that the results of the third quarter showed an evolution of the company, with the expansion of its ecosystem. “There were no unusual things, like the Via (VIIA3) which announced the impact of labor agreements”.
Everton Medeiros, a specialist at Valor Investimentos, recalls that, despite the regrets, the retailer showed an evolution in the e-commerce, which advanced 22%.
Another point raised by analysts is the increasingly fierce competition with the arrival of foreign rivals, such as the American Amazon and the asian ones alibaba and shopper. Last Thursday (18th), the Free market raised $1.6 billion in an equity offering.
In a report sent to customers, the Credit Suisse highlights that the Argentine company took the lead and now has greater firepower to invest in building its ecosystem.
However, the Swiss bank points out that the competitive landscape will remain as fierce as it has been in recent years.
“In addition, Magalu and American (AMER3) still have a lot of resources, which helps in revenue growth”, he adds.
Miziara, from Critéria, points out that these companies entered Brazil with differentials that Magazine Luiza was looking for, such as super fast deliveries and withdrawals from stores.
With more competitors in the market, the company will have to break a sweat if it wants to stand out, which implies more expenses with marketing and sales.
“The level of competition will increase a lot next year, with a drop in margins. This fight will start to be fiercer”, says Miziara.
Can Black Friday be a lifeline?
THE Sexta-feira Negra, which, this year, will take place on November 26, and the New Year’s celebrations are the investors’ hope for the end of the year. In the session this Friday (19), the paper gave a relief to close up 3.34%, but far from recovering the losses of recent weeks.
Even so, Rodrigo Crespi, market specialist at Investments Guide, recalls that smartphones, for example, should be well sought after on Black Friday, but the shortage of components will hinder more attractive offers.
So far, the data are not encouraging: according to the National Confederation of Commerce of Goods, Services and Tourism (CNC), Black Friday sales this year will show the first drop in five years.
What to do with the paper?
For 2022, Medeiros, from Valor Investimento, expects Magalu to deliver positive results, mainly due to seasonal sales at the end of the year. Among the top 15 review houses, 10 recommend buying, 5 recommending holding, and none recommending a sale.
“This is an important thermometer for the market. Due to the history of solid results that Magalu maintains, our view is positive, mainly due to the economic measures that have been taken even to contain inflation in the next year”, he adds.
Credit Suisse says the short term will continue to be difficult for the segment, due to weak growth in physical channels.
“However, we believe in increased penetration of e-commerce and attractive growth for 2022, which could represent a turning point for Magazine Luiza”, observes the bank.
The institution has an outperform recommendation for the paper, with a target price of R$ 15, which implies an increase of 61% compared to the last closing.
Cruz, from RB Investimentos, recalls that, in 2022, investors may prefer more resilient stocks, such as a petz (PETZ3) or a laser space (ESPA3). “Companies that will continue to grow regardless of who assumes the presidency”, he adds.