At HK$2.33, Is It Time To Put Ten Pao Group Holdings Limited (HKG:1979) On Your Watch List?

While Ten Pao Group Holdings Limited (HKG:1979) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price increase on the SEHK over the last few months. Less-covered, small caps tend to present 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? Today I will analyse the most recent data on Ten Pao Group Holdings’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Ten Pao Group Holdings

What is Ten Pao Group Holdings worth?

According to my 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. 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 8.06x is currently trading slightly below its industry peers’ ratio of 10.97x, which means if you buy Ten Pao Group Holdings today, you’d be paying a decent price for it. And if you believe that Ten Pao Group Holdings 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. Is there another opportunity to buy low in the future? Since Ten Pao Group 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 Ten Pao Group Holdings?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Ten Pao Group Holdings' earnings over the next few years are expected to increase by 97%, 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? 1979’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 track record of its management team. Have these factors changed since the last time you looked at 1979? 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 1979, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for 1979, 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.

If you'd like to know more about Ten Pao Group Holdings as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for Ten Pao Group Holdings you should be aware of.

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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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