Is China Modern Dairy Holdings Ltd. (HKG:1117) Potentially Undervalued?

China Modern Dairy Holdings Ltd. (HKG:1117), is not the largest company out there, but it received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$1.50 at one point, and dropping to the lows of HK$1.12. 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 China Modern Dairy Holdings' current trading price of HK$1.21 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 China Modern Dairy Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for China Modern Dairy Holdings

What's the opportunity in China Modern Dairy Holdings?

According to my valuation model, China Modern Dairy Holdings seems to be fairly priced at around 7.08% above my intrinsic value, which means if you buy China Modern Dairy Holdings today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is HK$1.13, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because China Modern Dairy Holdings’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will China Modern Dairy 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. China Modern Dairy 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? 1117’s optimistic future growth appears to have been factored into the current share price, 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 the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping an eye on 1117, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, 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.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 3 warning signs for China Modern Dairy Holdings you should be aware of.

If you are no longer interested in China Modern Dairy 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.