Is There Now An Opportunity In Nexteer Automotive Group Limited (HKG:1316)?

While Nexteer Automotive Group Limited (HKG:1316) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$6.21 at one point, and dropping to the lows of HK$4.68. 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 Nexteer Automotive Group's current trading price of HK$5.09 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Nexteer Automotive Group’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 Nexteer Automotive Group

What's The Opportunity In Nexteer Automotive Group?

Nexteer Automotive Group is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison to the industry average. I’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 67.38x is currently well-above the industry average of 14.32x, meaning that it is trading at a more expensive price relative to its peers. But, is there another opportunity to buy low in the future? Since Nexteer Automotive Group’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from Nexteer Automotive Group?

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. Nexteer Automotive Group's earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? 1316’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 1316 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 an eye on 1316 for a while, 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 positive outlook is encouraging for 1316, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Nexteer Automotive Group at this point in time. For example - Nexteer Automotive Group has 1 warning sign we think you should be aware of.

If you are no longer interested in Nexteer Automotive Group, 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.