C Cheng Holdings Limited (HKG:1486), which is in the professional services business, and is based in Hong Kong, saw a double-digit share price rise of over 10% in the past couple of months on the SEHK. 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 C Cheng Holdings’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What is C Cheng Holdings worth?According to my relative valuation model, the stock seems to be currently fairly priced. 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 C Cheng Holdings’s ratio of 15.77x is trading slightly above its industry peers’ ratio of 14.51x, which means if you buy C Cheng Holdings today, you’d be paying a relatively fair price for it. And if you believe C Cheng Holdings should be trading in this range, then there isn’t really any room for the share price grow beyond what it’s currently trading. Furthermore, C Cheng 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.
What kind of growth will C Cheng Holdings generate?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. 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. With revenues expected to grow by 36% over the next couple of years, the future seems bright for C Cheng Holdings. If the level of expenses is able to be maintained, it looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has already priced in 1486’s positive outlook, with shares trading around its fair value. 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 1486? Will you have enough conviction to buy should the price fluctuate below the true value?
Are you a potential investor? If you’ve been keeping tabs on 1486, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for 1486, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on C Cheng Holdings. You can find everything you need to know about C Cheng Holdings in the latest infographic research report. If you are no longer interested in C Cheng Holdings, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.