Should You Investigate EVA Precision Industrial Holdings Limited (HKG:838) At HK$1.14?

EVA Precision Industrial Holdings Limited (HKG:838), might not be a large cap stock, but it led the SEHK gainers with a relatively large price hike in the past couple of weeks. 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? Let’s examine EVA Precision Industrial Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for EVA Precision Industrial Holdings

What Is EVA Precision Industrial 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. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that EVA Precision Industrial Holdings’s ratio of 10.45x is trading slightly below its industry peers’ ratio of 11.89x, which means if you buy EVA Precision Industrial Holdings today, you’d be paying a reasonable price for it. And if you believe that EVA Precision Industrial 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. Furthermore, EVA Precision Industrial Holdings’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

Can we expect growth from EVA Precision Industrial Holdings?

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. EVA Precision Industrial Holdings' 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? 838’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 financial strength of the company. Have these factors changed since the last time you looked at 838? 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 838, 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 838, 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.

So while earnings quality is important, it's equally important to consider the risks facing EVA Precision Industrial Holdings at this point in time. At Simply Wall St, we found 1 warning sign for EVA Precision Industrial Holdings and we think they deserve your attention.

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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.