Why You Should Buy THIS Stock While It’s Still Rangebound

Whenever a stock is trading within a range, you’re left with a tricky situation as a long-term investor. Those periods of indecision don’t just happen for no reason, and there’s no guarantee that the eventual breakout will be to the upside.

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What you can do, however, is make a calculated move; take a reasonable chance based on the data that you have in front of you. And I’m pretty comfortable with making that bet on Betterware (NYSE: BWMX).

They’re a direct-to-consumer business based in Mexico that deals in Tupperware, food storage containers, cleaning tools, and beauty products.

The stock is down 2.57% in the past 30 days, and has been trading between $17.23 and $16.04 in that timeframe. Looking further back, BWMX shares are up 98% in the past 365 days; but there hasn’t been a clear trend since late January.

So, why do I think that the inevitable breakout will be a breakout to the upside? Well, there are a couple of reasons.

First and foremost: the fundamentals. Our Zen Ratings model, which takes into account 115 different factors, puts Betterware in the top 1% of the stocks we track. That puts it at the very top of the stocks that have a Zen Rating of A — which has historically corresponded to an average annual return of 32.52%. In fact, BWMX is currently our 10th highest-rated stock, out of a total of 4,600.

It’s also the top-rated stock in the Retail industry, which has an Industry Rating of D. A strong business in a struggling area, which is a setup that can lend itself to expanding market share and retail interest.

Now, each Zen Rating is a composite made up of 7 Component Grade ratings, so we’re going to take a look at those to see what makes BWMX so great.

The stock’s best rating is Financials, where it ranks in the top 5%. Betterware has a pretty healthy balance sheet, and the company’s profit margins have doubled from 4.1% to 8.2% in the past year.

Of course, a strong balance sheet by itself isn’t sufficient reason to open a position, but thankfully, that’s not the only area where Betterware shines. When you look at both Value and Growth, the stock ranks in the top 8%. Right now, the stock is trading at 0.79x revenue; in other words, you can get $1 in revenue for 79 cents. And revenue is forecast to grow by 196.83% for the year, compared to the industry average of 6.13%. 

On top of that, the latest quarterly report saw earnings per share (EPS) growth of 85% on a year-over-year (YoY) basis.

To top it all off, BWMX ranks in the 82nd percentile (equivalent to or better than 82% of stocks) when it comes to our Safety rating.

The areas where the stock isn’t exceptional are Momentum and Sentiment, but I want to put a big asterisk next to that statement. It isn’t bad in those regards: 69th percentile for Momentum, and 64th for Sentiment. That reflects the range-bound period we’ve seen and the fact that the smart money crowd isn’t entirely convinced.

Wall Street, on the other hand, is pretty convinced. Now, coverage is quite thin, as only 2 analysts issue ratings for BWMX, but their price targets are at $30 and $31. That’s an upside of 80.29% and 86.30%, respectively.

Your mileage may vary, but I’ve seen more than enough to justify opening a position. The price is still attractive relative to the solid growth prospects, even in light of the gains on the 1-year chart. There are no red flags here, fundamentals-wise, and even though coverage is relatively thin (not exceptionally so for a foreign small-cap), it is unanimously positive.

The thing that seals the deal for me is, funnily enough, a deal — a recent strategic acquisition. BWMX has purchased Tupperware’s Latin America business for $250 million. They expect that the antitrust approval will land in Q2, and per their own estimates, the acquisition could add roughly 40% to EPS.

Lastly, I’d just like to caution you that it might take a while for this one to play out. The next earnings report is due on July 23, so the stock might very well remain range-bound until then. But as far as I’m concerned, the price is fair, and having to wait a couple of months is a small drawback that I’m happy to take on.

—> Click here to research BWMX

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