At CN¥8.45, Is It Time To Put Perfect World Co., Ltd. (SZSE:002624) On Your Watch List?

Perfect World Co., Ltd. (SZSE:002624), is not the largest company out there, but it received a lot of attention from a substantial price movement on the SZSE over the last few months, increasing to CN¥12.30 at one point, and dropping to the lows of CN¥8.35. 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 Perfect World's current trading price of CN¥8.45 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Perfect World’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Perfect World

What's The Opportunity In Perfect World?

Perfect World appears to be expensive according to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. 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 75.71x is currently well-above the industry average of 38.92x, meaning that it is trading at a more expensive price relative to its peers. Another thing to keep in mind is that Perfect World’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards the levels of its industry peers over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard for it to fall back down into an attractive buying range again.

What kind of growth will Perfect World 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. 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. With profit expected to more than double over the next couple of years, the future seems bright for Perfect World. 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? 002624’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe 002624 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 002624 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 optimistic prospect is encouraging for 002624, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into Perfect World, you'd also look into what risks it is currently facing. Our analysis shows 3 warning signs for Perfect World (1 is a bit concerning!) and we strongly recommend you look at these before investing.

If you are no longer interested in Perfect World, 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.