Should You Think About Buying Yue Yuen Industrial (Holdings) Limited (HKG:551) Now?

Yue Yuen Industrial (Holdings) Limited (HKG:551), might not be a large cap stock, but it saw significant share price movement during recent months on the SEHK, rising to highs of HK$9.55 and falling to the lows of HK$7.34. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Yue Yuen Industrial (Holdings)'s current trading price of HK$7.34 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Yue Yuen Industrial (Holdings)’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Yue Yuen Industrial (Holdings)

Is Yue Yuen Industrial (Holdings) Still Cheap?

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 Yue Yuen Industrial (Holdings)’s ratio of 9.24x is trading slightly above its industry peers’ ratio of 8.75x, which means if you buy Yue Yuen Industrial (Holdings) today, you’d be paying a relatively reasonable price for it. And if you believe Yue Yuen Industrial (Holdings) should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that Yue Yuen Industrial (Holdings)’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Yue Yuen Industrial (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. With profit expected to grow by 85% over the next couple of years, the future seems bright for Yue Yuen Industrial (Holdings). 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? 551’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 551? 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 551, 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 551, 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.

So while earnings quality is important, it's equally important to consider the risks facing Yue Yuen Industrial (Holdings) at this point in time. Every company has risks, and we've spotted 2 warning signs for Yue Yuen Industrial (Holdings) you should know about.

If you are no longer interested in Yue Yuen Industrial (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.