With last night’s debate in the rearview mirror, we can all return to our regularly scheduled programming. I will say this: the muted mike didn’t seem to be working too well, but that’s a subject for another day.
Today, I’m on tap to discuss a stock or two that hit a 52-week high or low yesterday and why it might be a buy or sell.
According to Stocktwits, 94 stocks hit 52-week highs on Tuesday, and coincidentally, 94 hit 52-week lows. Of the 188 names, Sendas Distribuidora S.A. (ASAI), the Latin American cash & cash business that trades on the NYSE, hit a 52-week low.
I love Latin American stocks. With very little following -- it has just 21 Stocktwits followers -- this consumer defensive stock looks like an attractive value play for aggressive investors willing to stray from North America. Here’s why.
Who Is Sendas Distribuidora?
The company was founded in 1974 as a wholesale cash and carry to supply small businesses. It operates these stores under the Assai Atacadista banner. It finished the second quarter with 293 stores across 24 states in Brazil, making it one of the country’s largest retailers. Its 2023 revenue was 72.8 billion Brazilian real ($12.7 billion).
With no controlling investor, a larger company from outside Brazil could contemplate acquiring it.
In the meantime, it continues to expand its store network—it’s opened 81 stores since the beginning of 2022—with a total of over 300 stores by the end of 2024. Over the past 12 months through June 30, it opened 24, converting nine to its most common store size of around 5,000 square meters (53,820 square feet) and 15 brand new locations.
The conversions are happening because the company acquired 66 Extra Hiper locations in 2023 for 2.61 billion Brazilian real ($461 million) from its former controlling shareholder, CBD.
Its revenues in the first half of 2024, increased 12.2%, to 38.30 billion Brazilian real ($6.76 billion) with an adjusted EBITDA margin of 5.3%, 60 basis points higher than a year ago. Its same-store sales grew by 3.2%.
As the company continues to convert and remodel its stores, the sales per store are improving. “The 47 stores converted in 2022, which already show a more advanced stage of maturation, achieved an average sale/store of around R$ 26.5 million [$4.68 billion] in 2Q24. The EBITDA margin of conversions inaugurated in 2022 reached 5.1% in the quarter (+1.4p.p. vs. 2Q23),” pg. 4 of its Q2 2024 report stated.
“The sales level reached at the end of 2Q24 represents an increase of approximately 25% in comparison to the organic stores opened until 2022, which ended the period with an average monthly revenue of R$ 21.2 million [$3.74 billion].”
The quoted numbers are for the latest 12 months ended June 30.
It’s at a 3-Year Low
In Tuesday's trading, not only did it hit a 52-week low of $7.72, but it also hit a two-year and three-year low. It has now hit a 52-week low 15 times over the past 12 months.
The company was spun off by its former owner, CBD, on March 3, 2021, and began trading on the NYSE on March 8, 2021. So, it’s trading at its lowest point since going public.
Yet, its total enterprise value of 33.82 billion Brazilian real ($5.79 billion) is 6.98 times its EBITDA, the lowest multiple since it became a public company.
According to S&P Global Market Intelligence, 13 analysts cover its stock in Brazil. The analysts rate it a Buy (1.46 out of 5, with one being the best) with a long-term earnings growth rate of 28%.
With free cash flow expected to grow from 760 million Brazilian real ($134.1 million) in 2024 to 1.70 billion Brazilian real ($301.3 million) in 2027, its free cash flow yield is 2.3% based on 2024 and 5.2% based on the 2027 estimate.
It’s not cheap, cheap, but assuming it continues to grow its free cash flow, it’s fair value.
The Bottom Line on ASAI Stock
When you consider that its ADR traded as high as $20.98 in January 2023 and its business is getting stronger, aggressive investors ought to be at least a little bit curious about the potential of its stock.
Over the past 12 years, its revenues have grown 17-fold, from 4.3 billion Brazilian real ($759 million) in 2011 to 72.8 billion Brazilian real ($12.84 billion) in 2023. At the same time, it has grown its store count five-fold and its revenue per store 3.4 times.
Serving over 360,000 restaurants, 900,000 grocery stores, 60,000 hotels, and many other businesses, which account for 45% of its revenue, and 91 million households (55%), it’s become an indispensable part of Brazilian commerce.
The company points out that of the 203 cities in Brazil with 150,000 or more people, 90 do not have an Assai store. The opportunity is there.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
