Banco Macro: Banking on Argentina

03/28/2017 2:50 am EST

Focus: FINANCIALS

John Reese

Founder and CEO, Validea.com And Validea Capital Management

John Reese, editor of Validea, selects stock based on the long-standing investment strategies of many of the market's most legendary investors. Here, he looks at a stock that earns a 100% rating based on the price-to-earnings growth strategy of Peter Lynch.

Banco Macro SA (BMA) is an Argentina-based financial institution that offers traditional bank products and services to companies, including those operating in regional economies, as well as to individuals.

DETERMINE THE CLASSIFICATION:

This methodology would consider BMA a "fast-grower".

P/E/GROWTH RATIO: PASS

The investor should examine the P/E (11.33) relative to the growth rate (41.34%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company.

This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for BMA (0.27) is very favorable.

SALES AND P/E RATIO: PASS

For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth high enough to support a P/E above this threshold.

BMA, whose sales are $1,864.6 million, needs to have a P/E below 40 to pass this criterion. BMA's P/E of (11.33) is considered acceptable.

EPS GROWTH RATE: PASS

This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years.

This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable.

The EPS growth rate for BMA is 41.3%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate.

TOTAL DEBT/EQUITY RATIO: NEUTRAL

BMA is a financial company so debt to equity rules are not applied to determine the company's financial soundness.

EQUITY/ASSETS RATIO: PASS

This methodology uses the Equity/Assets Ratio as a way to determine a financial intermediary's health, as it is a better measure than the Debt/Equity Ratio. BMA's Equity/Assets ratio (14.00%) is very healthy and above the minimum 5% this methodology looks for, thus passing the criterion.

RETURN ON ASSETS: PASS

This methodology uses Return on Assets as a way to measure a financial intermediary's profitability. BMA's ROA (5.03%) is above the minimum 1% that this methodology looks for, thus passing the criterion.

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