When Should You Buy China Isotope & Radiation Corporation (HKG:1763)?

China Isotope & Radiation Corporation (HKG:1763), is not the largest company out there, but it saw a significant share price rise of over 20% in the past couple of months on the SEHK. As a small cap stock, which tends to lack high analyst coverage, 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 take a look at China Isotope & Radiation’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for China Isotope & Radiation

What is China Isotope & Radiation worth?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’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 36.61x is currently trading slightly below its industry peers’ ratio of 37.6x, which means if you buy China Isotope & Radiation today, you’d be paying a reasonable price for it. And if you believe that China Isotope & Radiation 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. In addition to this, it seems like China Isotope & Radiation’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from China Isotope & Radiation?

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 profit expected to more than double over the next couple of years, the future seems bright for China Isotope & Radiation. 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 1763’s positive outlook, 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 1763? 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 1763, 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 1763, 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 China Isotope & Radiation at this point in time. Every company has risks, and we've spotted 1 warning sign for China Isotope & Radiation you should know about.

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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. 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.
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