Why Johnson Electric Holdings Limited (HKG:179) Could Be Worth Watching

Johnson Electric Holdings Limited (HKG:179), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the SEHK. While good news for shareholders, the company has traded much higher in the past year. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s take a look at Johnson Electric Holdings’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Johnson Electric Holdings

What's The Opportunity In Johnson Electric Holdings?

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. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Johnson Electric Holdings’s ratio of 5.97x is trading slightly below its industry peers’ ratio of 6.62x, which means if you buy Johnson Electric Holdings today, you’d be paying a reasonable price for it. And if you believe Johnson Electric Holdings 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. Is there another opportunity to buy low in the future? Since Johnson Electric Holdings’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. 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 Johnson Electric Holdings?

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. However, with a relatively muted profit growth of 0.5% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Johnson Electric Holdings, at least in the short term.

What This Means For You

Are you a shareholder? It seems like the market has already priced in 179’s growth 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 179? 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 tabs on 179, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean 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 Johnson Electric Holdings at this point in time. For example, Johnson Electric Holdings has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

If you are no longer interested in Johnson Electric Holdings, 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.