Should You Think About Buying Kuang-Chi Technologies Co., Ltd. (SZSE:002625) Now?

Kuang-Chi Technologies Co., Ltd. (SZSE:002625), is not the largest company out there, but it received a lot of attention from a substantial price increase on the SZSE over the last few months. While good news for shareholders, the company has traded much higher in the past year. As a CN¥41b market-cap stock, it seems odd Kuang-Chi Technologies 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? Let’s examine Kuang-Chi Technologies’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Kuang-Chi Technologies

What Is Kuang-Chi Technologies Worth?

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. 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 64.36x is currently trading slightly above its industry peers’ ratio of 56.15x, which means if you buy Kuang-Chi Technologies today, you’d be paying a relatively sensible price for it. And if you believe Kuang-Chi Technologies 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. Although, there may be an opportunity to buy in the future. This is because Kuang-Chi Technologies’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

Can we expect growth from Kuang-Chi Technologies?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Kuang-Chi Technologies' earnings over the next few years are expected to increase by 92%, 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? 002625’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 track record of its management team. Have these factors changed since the last time you looked at 002625? 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 an eye on 002625, 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 002625, 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.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For instance, we've identified 2 warning signs for Kuang-Chi Technologies (1 doesn't sit too well with us) you should be familiar with.

If you are no longer interested in Kuang-Chi Technologies, 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.