pINDITEX, AN OPPORTUNITY? Inditex is the largest textile company in the world, created by Amancio Ortega and his wife barely 30 years ago, and it hasnt stopped growing its secret: a product with excellent style, quality and price.
The company continues to obtain juicy profits and growing, and its online sales have already reached 10 of its total. On the other hand, the competition in its sector is very strong, and I fear it will only grow in time, in particular from the internet and low cost shops. In the stockmarkets, its share is currently in a downwards tendency, even though the company recently announced an increase of 10 of its dividend yield. Instead of being frightened by this fall, as a value investor, when I see a high quality company like this: large, relatively solid, a multinational present all over the world, I definitely analyze if I should buy it.
As we know, the rule for investing is buying cheap and selling expensive, but the question is, is it cheap enough? At the moment of recording this article, as we see in this chart, the price is around the 25 mark after months falling. At first sight, it seems like a good price, moreso if we consider we are at levels not seen since 2015.
That being said, there are a few pieces of data I dont like. The first one, PER 21. PER is the priceearnings ratio, the share price divided by the profits per share value. As such, the lower the value of the PER, the more undervalued a company is in the stockmarkets.
On the other hand, a PER 21 means the share is already overvalued. To better understand this, the average of the IBEX 35, the spanish index where it is listed, has an average PER of 13. The second piece of data I dont like is its dividend. At the current price, it is barely above 3. If the share price recovers and rises hard, of course the dividend will matter little, considering I can sell the share earning two digits percent.
But what if it continues falling? the stockmarkets are unpredictable, and if for whatever reason the share continued its bearish tendency, nobody knows how low the price could sink, and for how long it would remain there. In this case, we can look forward to a long period of time with our money immobilized yielding only 3, or selling the shares at a loss. On the other hand, in the case of a company with a higher dividend and which I trust has the soundness to sustain it above 5, I can keep it in my porfolio for as long as I have to without selling, waiting for it to recover, as I am being paid a very good rent. This is why I dont want Inditex among the core companies in my porfolio even at these prices.
Analyzing the charts with no other considerations, I see a first buying zone around 24, and it would have to sink even lower to reach the second zone, around 20, a support it hasnt reached in years. Im a very patient and demanding investor, so the share would have to sink even lower for me to consider Inditex as a possible investment yes, the company is excellent, but I find it overvalued, and this in a sector with high competition. If the share sunk to far lower prices, I would buy Inditex to diversify, but at these prices there are far tastier fish in the sea.
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