It hasn't been a great afternoon session for Ambev investors, who have watched their shares sink by -1.4% to a price of $2.86. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
Ambev Has Attractive Multiples and Trades Below Its Graham Number:
Ambev S.A., through its subsidiaries, engages in the production, distribution, and sale of beer, draft beer, carbonated soft drinks, other non-alcoholic beverages, malt, and food products. The company belongs to the Consumer Staples sector, which has an average price to earnings (P/E) ratio of 24.36 and an average price to book (P/B) ratio of 4.29. In contrast, Ambev has a trailing 12 month P/E ratio of 15.1 and a P/B ratio of 0.53.
Ambev's PEG ratio is 2.44, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Increasing Revenues but Narrowing Margins:
| 2019-12-31 | 2020-12-31 | 2021-12-31 | 2022-12-31 | |
|---|---|---|---|---|
| Revenue (MM) | $52,600 | $58,379 | $72,854 | $79,709 |
| Gross Margins | 58.8% | 53.6% | 51.0% | 49.3% |
| Operating Margins | 31.0% | 24.7% | 23.9% | 22.3% |
| Net Margins | 22.4% | 19.49% | 17.39% | 18.14% |
| Net Income (MM) | $11,780 | $11,379 | $12,671 | $14,458 |
| Net Interest Expense (MM) | -$1,218 | -$505 | -$1,253 | -$1,250 |
| Depreciation & Amort. (MM) | -$4,675 | -$5,167 | -$5,397 | -$5,956 |
| Earnings Per Share | $0.74 | $0.74 | $0.82 | $0.19 |
| EPS Growth | n/a | 0.0% | 10.81% | -76.83% |
| Diluted Shares (MM) | 15,869 | 15,868 | 15,858 | 15,747 |
| Free Cash Flow (MM) | $13,312 | $14,163 | $15,224 | $14,109 |
| Capital Expenditures (MM) | -$5,069 | -$4,693 | -$7,677 | -$6,533 |
| Net Current Assets (MM) | -$11,566 | -$14,703 | -$15,958 | -$16,814 |
| Current Ratio | 1.1 | 1.06 | 0.99 | 0.93 |
| Long Term Debt (MM) | $2,410 | $2,054 | $2,253 | $2,788 |
| Net Debt / EBITDA | -0.48 | -0.65 | -0.68 | -0.53 |
Ambev has growing revenues and increasing reinvestment in the business and strong margins with a negative growth trend. Additionally, the company's financial statements display a steady stream of strong cash flows and low leverage. However, the firm suffers from slimmer gross margins than its peers and declining EPS growth.
