At HK$2.54, Is China Sanjiang Fine Chemicals Company Limited (HKG:2198) Worth Looking At Closely?

China Sanjiang Fine Chemicals Company Limited (HKG:2198), might not be a large cap stock, 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, 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? Today I will analyse the most recent data on China Sanjiang Fine Chemicals’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for China Sanjiang Fine Chemicals

What is China Sanjiang Fine Chemicals worth?

Good news, investors! China Sanjiang Fine Chemicals is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that China Sanjiang Fine Chemicals’s ratio of 2.99x is below its peer average of 8.89x, which indicates the stock is trading at a lower price compared to the Chemicals industry. However, given that China Sanjiang Fine Chemicals’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of China Sanjiang Fine Chemicals look like?

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. China Sanjiang Fine Chemicals' revenue growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. Unless expenses grow at the same level, or higher, this top-line growth should lead to robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? Since 2198 is currently trading below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. With an optimistic outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as financial health to consider, which could explain the current price multiple.

Are you a potential investor? If you’ve been keeping an eye on 2198 for a while, now might be the time to make a leap. Its buoyant future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy 2198. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed investment decision.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. While conducting our analysis, we found that China Sanjiang Fine Chemicals has 3 warning signs and it would be unwise to ignore these.

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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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