Is Rongsheng Petrochemical Co., Ltd. (SZSE:002493) Potentially Undervalued?

Today we're going to take a look at the well-established Rongsheng Petrochemical Co., Ltd. (SZSE:002493). The company's stock saw a double-digit share price rise of over 10% in the past couple of months on the SZSE. Shareholders may appreciate the recent price jump, but the company still has a way to go before reaching its yearly highs again. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s examine Rongsheng Petrochemical’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Rongsheng Petrochemical

Is Rongsheng Petrochemical 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 Rongsheng Petrochemical’s ratio of 29.4x is trading slightly below its industry peers’ ratio of 29.85x, which means if you buy Rongsheng Petrochemical today, you’d be paying a reasonable price for it. And if you believe that Rongsheng Petrochemical should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. In addition to this, it seems like Rongsheng Petrochemical’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 Rongsheng Petrochemical generate?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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. Rongsheng Petrochemical's earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? 002493’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 002493? 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 002493, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for 002493, 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.

If you'd like to know more about Rongsheng Petrochemical as a business, it's important to be aware of any risks it's facing. For instance, we've identified 2 warning signs for Rongsheng Petrochemical (1 is potentially serious) you should be familiar with.

If you are no longer interested in Rongsheng Petrochemical, 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.