Why Rongsheng Petrochemical Co., Ltd. (SZSE:002493) Could Be Worth Watching

Rongsheng Petrochemical Co., Ltd. (SZSE:002493) received a lot of attention from a substantial price movement on the SZSE over the last few months, increasing to CN¥11.60 at one point, and dropping to the lows of CN¥9.72. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Rongsheng Petrochemical's current trading price of CN¥9.78 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Rongsheng Petrochemical’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Rongsheng Petrochemical

What's The Opportunity In Rongsheng Petrochemical?

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 29.46x is trading slightly below its industry peers’ ratio of 30.52x, which means if you buy Rongsheng Petrochemical today, you’d be paying a decent 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?

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 more than double over the next couple of years, the future seems bright for Rongsheng Petrochemical. 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? 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 financial strength of the company. Have these factors changed since the last time you looked at 002493? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on 002493, now may not be the most optimal 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. Case in point: We've spotted 2 warning signs for Rongsheng Petrochemical you should be mindful of and 1 of these makes us a bit uncomfortable.

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.