At HK$3.07, Is It Time To Put Chaowei Power Holdings Limited (HKG:951) On Your Watch List?

While Chaowei Power Holdings Limited (HKG:951) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10% in the past couple of months on the SEHK. As a small cap stock, hardly covered by any analysts, 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? Today I will analyse the most recent data on Chaowei Power Holdings’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Chaowei Power Holdings

Is Chaowei Power Holdings still cheap?

Great news for investors – Chaowei Power Holdings is still trading at a fairly cheap price. My valuation model shows that the intrinsic value for the stock is HK$3.86, but it is currently trading at HK$3.07 on the share market, meaning that there is still an opportunity to buy now. Although, there may be another chance to buy again in the future. This is because Chaowei Power Holdings’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company's shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will Chaowei Power Holdings generate?

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. Though in the case of Chaowei Power Holdings, it is expected to deliver a negative earnings growth of -8.9%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? Although 951 is currently undervalued, the adverse prospect of negative growth brings about some degree of risk. Consider whether you want to increase your portfolio exposure to 951, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping an eye on 951 for a while, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For instance, we've identified 4 warning signs for Chaowei Power Holdings (1 is a bit unpleasant) you should be familiar with.

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This article by Simply Wall St is general in nature. 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.
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