What Does Nine Dragons Paper (Holdings) Limited's (HKG:2689) Share Price Indicate?

Nine Dragons Paper (Holdings) Limited (HKG:2689), 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. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine Nine Dragons Paper (Holdings)’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Nine Dragons Paper (Holdings)

What Is Nine Dragons Paper (Holdings) Worth?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 9.74x is currently trading slightly below its industry peers’ ratio of 13.69x, which means if you buy Nine Dragons Paper (Holdings) today, you’d be paying a reasonable price for it. And if you believe Nine Dragons Paper (Holdings) should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, it seems like Nine Dragons Paper (Holdings)’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

What does the future of Nine Dragons Paper (Holdings) look like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Nine Dragons Paper (Holdings)'s earnings over the next few years are expected to increase by 57%, 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? It seems like the market has already priced in 2689’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 2689? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on 2689, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for 2689, 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.

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. Our analysis shows 2 warning signs for Nine Dragons Paper (Holdings) (1 makes us a bit uncomfortable!) and we strongly recommend you look at these before investing.

If you are no longer interested in Nine Dragons Paper (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.