What Does China XLX Fertiliser Ltd.'s (HKG:1866) Share Price Indicate?

While China XLX Fertiliser Ltd. (HKG:1866) might not have the largest market cap around , it led the SEHK gainers with a relatively large price hike in the past couple of weeks. The company's trading levels have reached its high for the past year, following the recent bounce in the share price. As a small cap stock, hardly covered by any analysts, 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 examine China XLX Fertiliser’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

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What's The Opportunity In China XLX Fertiliser?

China XLX Fertiliser appears to be overvalued by 21% at the moment, based on our discounted cash flow valuation. The stock is currently priced at HK$6.18 on the market compared to our intrinsic value of HK$5.10. Not the best news for investors looking to buy! Another thing to keep in mind is that China XLX Fertiliser’s share price is quite stable relative to the market, as indicated by its low beta. This means that if you believe the current share price should move towards its intrinsic value over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.

Check out our latest analysis for China XLX Fertiliser

What does the future of China XLX Fertiliser look like?

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 XLX Fertiliser's earnings over the next few years are expected to increase by 63%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? 1866’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe 1866 should trade below its current price, selling high and buying it back up again when its price falls towards its real value 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 1866 for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook is encouraging for 1866, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into China XLX Fertiliser, you'd also look into what risks it is currently facing. Case in point: We've spotted 3 warning signs for China XLX Fertiliser you should be aware of.

If you are no longer interested in China XLX Fertiliser, 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.