Is China Resources Microelectronics Limited (SHSE:688396) Potentially Undervalued?

While China Resources Microelectronics Limited (SHSE:688396) might not have the largest market cap around , it saw significant share price movement during recent months on the SHSE, rising to highs of CN¥43.38 and falling to the lows of CN¥36.16. 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 China Resources Microelectronics' current trading price of CN¥37.01 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 China Resources Microelectronics’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for China Resources Microelectronics

Is China Resources Microelectronics Still Cheap?

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 43.16x is currently trading slightly below its industry peers’ ratio of 47.98x, which means if you buy China Resources Microelectronics today, you’d be paying a decent price for it. And if you believe that China Resources Microelectronics 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 China Resources Microelectronics’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.

Can we expect growth from China Resources Microelectronics?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. China Resources Microelectronics' earnings over the next few years are expected to increase by 71%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? 688396’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 688396? 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 688396, 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 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.

If you want to dive deeper into China Resources Microelectronics, you'd also look into what risks it is currently facing. For example, China Resources Microelectronics has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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.