Why NINGBO HENGSHUAI Co., LTD. (SZSE:300969) Could Be Worth Watching

While NINGBO HENGSHUAI Co., LTD. (SZSE:300969) might not have the largest market cap around , it saw a decent share price growth of 10% on the SZSE over the last few months. The recent rally in share prices has nudged the company in the right direction, though it still falls short of its yearly peak. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine NINGBO HENGSHUAI’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for NINGBO HENGSHUAI

What's The Opportunity In NINGBO HENGSHUAI?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 19.22x is currently trading slightly below its industry peers’ ratio of 23.48x, which means if you buy NINGBO HENGSHUAI today, you’d be paying a decent price for it. And if you believe NINGBO HENGSHUAI should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, it seems like NINGBO HENGSHUAI’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

What does the future of NINGBO HENGSHUAI look like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 60% over the next couple of years, the future seems bright for NINGBO HENGSHUAI. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has already priced in 300969’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at 300969? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on 300969, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for 300969, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For instance, we've identified 2 warning signs for NINGBO HENGSHUAI (1 is a bit unpleasant) you should be familiar with.

If you are no longer interested in NINGBO HENGSHUAI, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.