Why Tangshan Sunfar Silicon Industries Co.,Ltd. (SHSE:603938) Could Be Worth Watching

Tangshan Sunfar Silicon Industries Co.,Ltd. (SHSE:603938), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the SHSE over the last few months. While good news for shareholders, the company has traded much higher in the past year. As a small cap stock, hardly covered by any analysts, 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? Today we will analyse the most recent data on Tangshan Sunfar Silicon IndustriesLtd’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Tangshan Sunfar Silicon IndustriesLtd

Is Tangshan Sunfar Silicon IndustriesLtd Still Cheap?

According to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. 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 Tangshan Sunfar Silicon IndustriesLtd’s ratio of 64.13x is above its peer average of 35.66x, which suggests the stock is trading at a higher price compared to the Chemicals industry. In addition to this, it seems like Tangshan Sunfar Silicon IndustriesLtd’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

What does the future of Tangshan Sunfar Silicon IndustriesLtd 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. In Tangshan Sunfar Silicon IndustriesLtd's case, its revenues over the next few years are expected to grow by 39%, indicating a highly optimistic future ahead. If expense does not increase by the same rate, or higher, this top line growth should lead to stronger cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in 603938’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe 603938 should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on 603938 for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for 603938, which means it’s worth diving deeper into other factors 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. While conducting our analysis, we found that Tangshan Sunfar Silicon IndustriesLtd has 1 warning sign and it would be unwise to ignore it.

If you are no longer interested in Tangshan Sunfar Silicon IndustriesLtd, 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.