At CN¥32.04, Is It Time To Put Zhuzhou Hongda Electronics Corp.,Ltd. (SZSE:300726) On Your Watch List?

Zhuzhou Hongda Electronics Corp.,Ltd. (SZSE:300726), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the SZSE over the last few months. Shareholders may appreciate the recent price jump, but the company still has a way to go before reaching its yearly highs again. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at Zhuzhou Hongda ElectronicsLtd’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for Zhuzhou Hongda ElectronicsLtd

What's The Opportunity In Zhuzhou Hongda ElectronicsLtd?

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. 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 35.61x is currently trading slightly below its industry peers’ ratio of 41.36x, which means if you buy Zhuzhou Hongda ElectronicsLtd today, you’d be paying a reasonable price for it. And if you believe Zhuzhou Hongda ElectronicsLtd should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that Zhuzhou Hongda ElectronicsLtd’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Zhuzhou Hongda ElectronicsLtd?

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 84% over the next couple of years, the future seems bright for Zhuzhou Hongda ElectronicsLtd. 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 300726’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 track record of its management team. Have these factors changed since the last time you looked at 300726? 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 300726, 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 300726, 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.

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. For example, Zhuzhou Hongda ElectronicsLtd has 4 warning signs (and 1 which is a bit unpleasant) we think you should know about.

If you are no longer interested in Zhuzhou Hongda ElectronicsLtd, 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.