Value
8.8/10data confidence 83%| Component | Sub-score |
|---|---|
| P/E | 8.9 |
| P/S | 10.0 |
| EV/EBITDA | 9.8 |
| Fwd P/E | 9.1 |
| Analyst target | 7.5 |
- ▸Forward P/E: 11.5x
- ▸Attractively valued
SBS · Why this verdict
Why Companhia de saneamento Basico (SBS) is rated HOLD
Updated
Model-generated analysis — not investment advice. Not a registered investment advisor. Past performance does not guarantee future results. How we score · Editorial policy
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VerdictHOLD
Overall score5.7/10
ConfidenceMEDIUM
MacroRISK_OFF
TrendMatrix Research · core thesis
Engine thesis — one sentence
Companhia de Saneamento Basico is a regulated water utility that ranks in the top tier of its peer group on valuation, profitability, and growth simultaneously, trades at a forward price-to-earnings of 10.1x with a PEG of 0.65, but a free cash flow quality flag and thin asymmetry limit near-term positioning.
Falsifiable statement — pillar-level invalidators below. Engine-derived; not personalized advice.
Thesis pillars
| Pillar | Expectation | Trend |
|---|---|---|
The company ranks in the top third of its peer universe on value, quality, and growth simultaneously — a rare combination for a regulated utility — suggesting it is meaningfully underpriced relative to its sector. Peer-rank breakdown | The peer rank composite score improves further over 12 months as the market re-rates the stock toward the peer median valuation. | →Stable |
| CounterUtilities in emerging markets like Brazil often trade at persistent discounts due to currency risk, regulatory uncertainty, and political intervention in rate-setting; a cheap multiple may be rational rather than correctable. | ||
At a forward price-to-earnings of 10.1x and a PEG of 0.65, the stock is attractively priced relative to its earnings growth trajectory, with analysts targeting a price roughly 23% above the current level of $5.57. Valuation breakdown | Price rises above $6.50, more than 17% above the current $5.57, within 12 months as the valuation gap to peers closes. | ↑Improving |
| CounterThe analyst upside of 23% has not materialized despite the stock appearing cheap; currency depreciation in the Brazilian real could erode dollar-denominated returns for US investors even if the local thesis plays out. | ||
Free cash flow is -116% of net income, a red flag indicating the company is spending significantly more than its earnings on capital expenditures or working capital, which limits dividend sustainability and financial flexibility. Quality breakdown | Free cash flow turns positive and reaches at least 30% of net income within 12 months as capital spending cycles down. | →Stable |
| CounterRegulated water utilities typically invest heavily in infrastructure upgrades mandated by concession agreements; negative free cash flow may be a deliberate and rate-base-building phase rather than a sign of financial stress. | ||
Earnings have come in at or above estimates in each of the last 4 quarters with an average positive surprise of 8.7%, including a 36% beat in August 2025, suggesting a conservative forecasting culture that tends to understate actual performance. Earnings | Earnings surprises remain positive in at least 3 of the next 4 quarters, maintaining the track record of conservative guidance. | ↑Improving |
| CounterFor a utility, earnings beats often reflect regulatory timing rather than business outperformance; if rate review decisions are delayed or come in below expectations, the beat pattern may not continue. | ||
The company ranks in the top third of its peer universe on value, quality, and growth simultaneously — a rare combination for a regulated utility — suggesting it is meaningfully underpriced relative to its sector.
→StablePeer-rank breakdown
- Expectation
- The peer rank composite score improves further over 12 months as the market re-rates the stock toward the peer median valuation.
CounterUtilities in emerging markets like Brazil often trade at persistent discounts due to currency risk, regulatory uncertainty, and political intervention in rate-setting; a cheap multiple may be rational rather than correctable.
At a forward price-to-earnings of 10.1x and a PEG of 0.65, the stock is attractively priced relative to its earnings growth trajectory, with analysts targeting a price roughly 23% above the current level of $5.57.
↑ImprovingValuation breakdown
- Expectation
- Price rises above $6.50, more than 17% above the current $5.57, within 12 months as the valuation gap to peers closes.
CounterThe analyst upside of 23% has not materialized despite the stock appearing cheap; currency depreciation in the Brazilian real could erode dollar-denominated returns for US investors even if the local thesis plays out.
Free cash flow is -116% of net income, a red flag indicating the company is spending significantly more than its earnings on capital expenditures or working capital, which limits dividend sustainability and financial flexibility.
→StableQuality breakdown
- Expectation
- Free cash flow turns positive and reaches at least 30% of net income within 12 months as capital spending cycles down.
CounterRegulated water utilities typically invest heavily in infrastructure upgrades mandated by concession agreements; negative free cash flow may be a deliberate and rate-base-building phase rather than a sign of financial stress.
Earnings have come in at or above estimates in each of the last 4 quarters with an average positive surprise of 8.7%, including a 36% beat in August 2025, suggesting a conservative forecasting culture that tends to understate actual performance.
↑ImprovingEarnings
- Expectation
- Earnings surprises remain positive in at least 3 of the next 4 quarters, maintaining the track record of conservative guidance.
CounterFor a utility, earnings beats often reflect regulatory timing rather than business outperformance; if rate review decisions are delayed or come in below expectations, the beat pattern may not continue.
Per-dimension breakdown
Quality
5.8/10data confidence 100%| Component | Sub-score |
|---|---|
| ROE | 6.3 |
| ROA | 5.2 |
| Gross margin | 3.1 |
| Op margin | 10.0 |
| Net margin | 9.8 |
| Current ratio | 5.4 |
| FCF quality | 0.0 |
| Moat | 6.1 |
| Piotroski F | 6.7 |
- ▸Strong margins: 20%
- ▸Earnings quality RED FLAG: -78% FCF/NI
Growth
3.0/10data confidence 67%| Component | Sub-score |
|---|---|
| Rev growth | 6.0 |
| EPS growth | 0.0 |
Momentum
1.9/10data confidence 100%| Component | Sub-score |
|---|---|
| RSI | 3.0 |
| MACD | 0.0 |
| OBV | 1.0 |
| MA position | 2.2 |
| Volume | 3.3 |
- ▸Capitulation risk (RSI 16, below 200MA)
- ▸Volume distribution (falling OBV)
- ▸Below 200-MA but MA still rising (+3.2%/30d) — pullback in uptrend, not confirmed weakness
Sentiment
6.8/10data confidence 100%| Component | Sub-score |
|---|---|
| LLM sentiment | 3.8 |
| Analyst rating | 7.6 |
| Price target | 9.2 |
- ▸Light analyst coverage (6.0) — signal dampened
- ▸Analyst upside: 41%
Insider
7.3/10data confidence 75%| Component | Sub-score |
|---|---|
| materiality | 5.0 |
| holder change | 10.0 |
| notable moves | 7.0 |
- ▸No net insider activity — $0 (0.000% of mkt cap)
- ▸Institutions accumulating
Peer rank
5.7/10data confidence 80%| Component | Sub-score |
|---|---|
| value rank | 8.9 |
| quality rank | 6.1 |
| growth rank | 5.6 |
- ▸Attractive P/E vs peers
- ▸Superior ROE vs peers
Technical
7.4/10data confidence 100%| Component | Sub-score |
|---|---|
| bollinger | 10.0 |
| support resistance | 9.3 |
| 52w position | 3.0 |
Risk (lower is worse)
5.6/10data confidence 100%| Component | Sub-score |
|---|---|
| short interest | 9.7 |
| days to cover | 9.5 |
| volatility | 0.0 |
| implied vol | 0.7 |
| max pain risk | 5.0 |
| beta | 10.0 |
| debt equity | 4.7 |
| news risk | 5.0 |
- ▸High IV: 76%
Catalyst
4.9/10data confidence 100%| Component | Sub-score |
|---|---|
| erm | 5.0 |
| earnings timing | 5.0 |
| surprise avg | 2.3 |
| dividend safety | 4.3 |
| news activity | 8.0 |
- ▸Earnings in 7 days
- ▸Yield trap warning: high yield but unsafe
How the verdict was assembled
Engine trigger
Maintain position. Not compelling to add more.
Engine technical detail
verdict_path:
L4:PATH_F_HOLDPassed (6)
- ASYMMETRY:1.7>=1.5
- INSIDER:OK
- 8K:CLEAN
- NEWS_EVENTS:NONE_RECENT
- SEMI_CYCLE_PEAK:CLEAR
- MATERIALS_CYCLE_PEAK:CLEAR
Failed (2)
- MOMENTUM:1.9<4.5
- EARNINGS_PROXIMITY:7d<=7d
Warning (0)
none
Reward-to-Risk
1.69
Upside
+22.8%
Downside
13.5%
Sizing output
AVOID
Setup— — No clear chart pattern; technical signals are mixed
EdgeSector Rotation — Utilities sector out of favor, value=8.8
SuitabilityModerate — Balanced profile
Investment implication
None of the engine's positive-conviction paths (C-quality, D-momentum) triggered — the F-path HOLD reflects balanced signals. Strongest-cleared gate: ASYMMETRY:1.7>=1.5. Top dim: Value at 8.8; weakest: Momentum at 1.9. No conviction either direction.
The strongest dimensions are Value at 8.8, Technical at 7.4, and Insider at 7.3; the weakest are Momentum at 1.9, Growth at 3.0, and Catalyst at 4.9. The V9 engine flagged 2 failed gates, producing an asymmetric reward-to-risk of 1.69 and an engine sizing output of AVOID.
What would invalidate the thesis
Falsifying conditions — when triggered, the corresponding pillar's thesis is invalidated.
- P1Peer Leading Valuation Quality Growth
Trip ifPeer rank composite score falls below the 40th percentile in at least 2 of the 3 dimensions (value, quality, growth), indicating the valuation advantage has eroded.
- P2Attractive Forward Valuation
Trip ifAnalyst consensus price target drops below $5.00, lower than the current price of $5.57, indicating downward estimate revisions.
- P3Free Cash Flow Quality Concern
Trip ifFree cash flow as a percentage of net income falls below -200%, more than 84 percentage points worse than the current -116% level.
- P4Solid Earnings Consistency
Trip ifEPS surprise falls below -10% in at least 2 of the next 4 quarters, breaking the track record of conservative guidance.