At CN¥51.20, Is It Time To Put China Resources Microelectronics Limited (SHSE:688396) On Your Watch List?

While China Resources Microelectronics Limited (SHSE:688396) might not have the largest market cap around , 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 mid-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 China Resources Microelectronics’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for China Resources Microelectronics

What Is China Resources Microelectronics Worth?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to 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 69.03x is currently trading slightly above its industry peers’ ratio of 64.69x, which means if you buy China Resources Microelectronics today, you’d be paying a relatively sensible price for it. And if you believe that China Resources Microelectronics should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Furthermore, China Resources Microelectronics’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

Can we expect growth from China Resources Microelectronics?

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. With profit expected to grow by 65% over the next couple of years, the future seems bright for China Resources Microelectronics. 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? It seems like the market has already priced in 688396’s positive outlook, 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 688396? 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 an eye on 688396, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for 688396, 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.

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. At Simply Wall St, we found 2 warning signs for China Resources Microelectronics and we think they deserve your attention.

If you are no longer interested in China Resources Microelectronics, 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.