Is Now An Opportune Moment To Examine North Industries Group Red Arrow Co., Ltd (SZSE:000519)?

North Industries Group Red Arrow Co., Ltd (SZSE:000519), is not the largest company out there, but it led the SZSE gainers with a relatively large price hike in the past couple of weeks. While good news for shareholders, the company has traded much higher in the past year. As a CN¥21b market-cap stock, it seems odd North Industries Group Red Arrow is not more well-covered by analysts. Although, there is more of an opportunity for mispricing in stocks with low coverage, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today we will analyse the most recent data on North Industries Group Red Arrow’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for North Industries Group Red Arrow

Is North Industries Group Red Arrow Still Cheap?

According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that North Industries Group Red Arrow’s ratio of 37.57x is trading slightly above its industry peers’ ratio of 35.31x, which means if you buy North Industries Group Red Arrow today, you’d be paying a relatively sensible price for it. And if you believe North Industries Group Red Arrow should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. In addition to this, it seems like North Industries Group Red Arrow’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will North Industries Group Red Arrow generate?

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. North Industries Group Red Arrow's earnings over the next few years are expected to increase by 76%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? 000519’s optimistic future growth appears to have been factored into the current share price, 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 000519? 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 000519, 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 000519, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. At Simply Wall St, we found 1 warning sign for North Industries Group Red Arrow and we think they deserve your attention.

If you are no longer interested in North Industries Group Red Arrow, 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.