Is NagaCorp Ltd. (HKG:3918) Potentially Undervalued?

NagaCorp Ltd. (HKG:3918), is not the largest company out there, but it saw a significant share price rise of 43% in the past couple of months on the SEHK. While good news for shareholders, the company has traded much higher in the past year. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s take a look at NagaCorp’s outlook and value based on the most recent financial data to see if the opportunity still exists.

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What's The Opportunity In NagaCorp?

According to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. We’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 19.15x is currently well-above the industry average of 14.97x, meaning that it is trading at a more expensive price relative to its peers. But, is there another opportunity to buy low in the future? Since NagaCorp’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. 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.

See our latest analysis for NagaCorp

Can we expect growth from NagaCorp?

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 more than double over the next couple of years, the future seems bright for NagaCorp. 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? 3918’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe 3918 should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on 3918 for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for 3918, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you'd like to know more about NagaCorp as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that NagaCorp has 2 warning signs and it would be unwise to ignore these.

If you are no longer interested in NagaCorp, 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.