With shares of Petrobras (NYSE:PBR) trading at around $14.81, is PBR an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock’s Movement
Imagine investing all your time and money in a business in your local neighborhood, seeing success, and then having a mafia figure come along and demand a cut as well as significant control of the operation. This would likely anger you. Now let’s take it one step further and say that all your relatives, friends, and acquaintances in the neighborhood have invested in the business. Instead of enjoying profitable returns, a hefty portion of those returns will have to go to the demanding and threatening mafia figure. This would anger you even more.
This is pretty much what’s taking in place in Brazil when it comes to Petrobras. The Brazilian government might think it’s doing the right thing because of short-term gains, but it’s making a big mistake, because it will lose the trust of its people. Also, if the economic situation worsens and the Petrobras weakens, then it’s possible for investor panic to set in. This is all a terrible shame considering Petrobras was once on every investor’s radar, and the future prospects were bright.
Other negatives for Petrobras include the announcement of a dividend cut of at least 50 percent, high costs due to the company’s resources being located in a difficult-to-reach area, a weakening balance sheet, and weakening margins. Economic negatives for Brazil also impact Petrobras. They include rate cuts not leading to anticipated results, inflation, and a decline in consumer confidence for five consecutive months.
Now let’s take a look at some important numbers prior to forming an opinion on this stock.