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Is Cresud S.A. a Smart Agricultural Commodities Stock to Invest In?

Due to the Russia-Ukraine war, prices of agricultural commodities are rising. This may lead to higher profits for agricultural companies. However, given its lower-than-industry profitability, will agri-concern Cresud Sociedad (CRESY) be a wise addition to one’s portfolio? Read on to learn our view.

Headquartered in Buenos Aires, Argentina, Cresud Sociedad Anónima, Comercial, Inmobiliaria, Financiera y Agropecuaria (CRESY) is an agricultural company that produces basic agricultural commodities in Brazil and other Latin American countries. It operates through Agricultural Business; Urban Properties; and Investment Business segments.

Since Russia invaded Ukraine, concerns about food security, the rising prices of agricultural commodities, and future harvests have been heightened. Due to the war, exports from the two major producers of agricultural products have nearly stopped, leading to a rise in the prices of fertilizers, agricultural commodities, and global food prices. The increasing prices of agricultural commodities may lead to higher profits for agricultural companies, but not all companies are well-positioned to benefit from the current environment.

CRESY has gained 71.8% in price year-to-date and 64.1% over the past three months to close the last trading session at $8.11.

Here is what could influence the CRESY performance in the upcoming months:

Robust Financials

CRESY’s revenues have increased 46.2% year-over-year to ARS35.94 billion ($0.31 billion) for six months ended Dec. 31, 2021. The company’s adjusted EBITDA increased 21.7% year-over-year to ARS15.82 billion ($0.13 billion). Also, its earnings for the period came in at ARS38.03 billion ($0.33 billion), compared to a  ARS4.92 billion ($0.04 billion) loss in the year-ago period. In addition, its gross profit increased 69% year-over-year to ARS14.64 billion ($0.12 billion).

Discounted Valuation

In terms of trailing-12-month P/S, CRESY’s 1.67x is lower than the 6.75x industry average. Also, its trailing-12-month P/B and P/Cash Flow of 1.67x and 6.33x are 14.1% and 63.3% lower than the 1.94x and 17.28x industry averages, respectively.

Lower-than-industry Profitability

In terms of trailing-12-month gross profit margin, CRESY’s 23.67% is 65% lower than the 67.81% industry average. Its trailing-12-month EBIT and EBITDA margins of 0.09% and 2.33%, respectively, are lower than the 23.14% and 56.20% industry averages.

POWR Ratings Reflect Uncertainty

CRESY has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CRESY has a C grade for Quality, which is consistent with its negative trailing-12-month levered FCF margin, versus the 36.39% industry average.

It has a C grade for Stability, which is in sync with its 1.62 beta.

Among the 32 stocks in the Agriculture industry, CRESY is ranked #14.

Beyond what I have stated above, view CRESY’s ratings for Growth, Value, Momentum, and Sentiment here.

Bottom Line

Since the supply of essential agricultural commodities is expected to remain under pressure in the near term, prices are expected to rise further, leading to higher revenues for agricultural companies. However, CRESY does not look well-positioned to capitalize on the rising prices. So, we think it could be wise to wait for a better entry point in the stock.

How Does Cresud Sociedad Anónima, Comercial, Inmobiliaria, Financiera y Agropecuaria (CRESY) Stack Up Against its Peers?

CRESY has an overall POWR Rating of C, equating to a Neutral rating. Therefore, one might want to consider investing in other Agriculture stocks with an A (Strong Buy) or B (Buy) rating, such as Golden Agri-Resources Ltd (GARPY), Nutrien Ltd. (NTR), and CF Industries Holdings, Inc. (CF).

CRESY shares were trading at $8.24 per share on Tuesday morning, up $0.13 (+1.60%). Year-to-date, CRESY has gained 74.58%, versus a -10.42% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.


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