CIA ENERGETICA DE-SPON ADR (NYSE:CIG) – A GARP Candidate Worth Considering

CIA ENERGETICA DE-SPON ADR (NYSE:CIG) surfaced in our Peter Lynch-inspired stock screen, which targets companies with sustainable growth and reasonable valuations. The Brazilian utility firm demonstrates strong profitability and financial health while trading at an attractive valuation. Below, we examine why CIG fits the growth-at-a-reasonable-price (GARP) approach.

Key Strengths

• Strong Historical Growth: CIG has delivered a 5-year average EPS growth of 26.4%, comfortably within Lynch’s preferred range of 15-30%.
• Attractive Valuation: With a PEG ratio of 0.16 (well below the ideal threshold of 1), the stock appears undervalued relative to its growth.
• Healthy Profitability: The company’s return on equity (ROE) stands at 25.1%, significantly above the 15% minimum Lynch favored.
• Solid Financial Position: A debt-to-equity ratio of 0.46 and a current ratio of 1.06 indicate manageable leverage and sufficient liquidity.

Fundamental Snapshot

Our fundamental analysis report assigns CIG a score of 6/10, noting its cheap valuation and decent financial health. Key takeaways:

• Profitability: High ROE and profit margins outperform most industry peers.
• Valuation: P/E of 4.35 and low price-to-free-cash-flow ratios suggest the stock is priced conservatively.
• Dividend: A 3.04% yield, though slightly below the sector average, comes with a strong track record of growth.

Risks to Consider

• Earnings Decline: Analysts project a -25.5% annual EPS drop in the coming years, which could pressure performance.
• Industry Challenges: Operating margins lag behind some competitors, reflecting sector-wide cost pressures.

For investors seeking GARP opportunities, CIG presents a compelling case with its historical growth, profitability, and valuation. However, further research into its earnings outlook and industry dynamics is advisable.

Our Peter Lynch Strategy screener lists more stocks meeting these criteria and is updated regularly.

Disclaimer

This is not investing advice! The article highlights observations at the time of writing, but you should conduct your own analysis before making investment decisions.