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Should You Exit This Small-Cap Materials Stock - LOMA

Feb 18, 2022 | Team Kalkine
Should You Exit This Small-Cap Materials Stock - LOMA

Loma Negra Compania Industrial Argentina SA

Loma Negra Compania Industrial Argentina SA (NYSE: LOMA) is a leading cement manufacturer and distributor based in Argentina. It is engaged in producing and marketing cement, masonry cement, aggregates, concrete, and lime for private and public projects. LOMA has 119.21 million American Depository Shares (ADS) listed and outstanding (each ADS representing five common shares).

Why Should Investors Exit?

  • Significant Decline in Profitability: Net income declined 72.09% YoY to ARS 22 billion in 9MFY21 (ended September 30, 2021) from ARS 11.54 billion in 9MFY20.
  • Weak Margin Profile: In Q3FY21, LOMA’s reported gross margin was 25.8% vs. the industry median of 35.8% and reported net margin of 8.4% in the period under consideration which was lower than the 20.9% reported in the same period of the corresponding previous financial year.
  • Economic Risk: Argentina's economy has been characterized by significant instability in recent decades, with high inflation, devaluation of the Argentine Peso against the US dollar, and periods of unequal economic improvement. As a result, changes in the economics and politics of Argentina may impact the company's operations.
  • Currency Fluctuation Risk: In FY19 and FY20, the Argentine peso (ARS) fell by 59.02% and 40.49% against the US dollar, respectively. As a result, he Argentine economy and the company's activities could suffer considerably if the ARS dramatic depreciation persists.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

LOMA's share price has declined 10.0% in the past six months and is currently trading close to the mid-band of its 52-week range of USD 5.12 to USD 8.26. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 5.65.

Considering the company's declining profitability, weak margin profile, current valuation and associated risks. we recommend a "Sell" rating on the stock at the current price of USD 6.525, up 0.69% as of February 17, 2022, at 01:30 PM ET.

Three-Year Technical Price Chart (as of February 17, 2022, at 01:30 PM ET). Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.