Is It Time To Consider Buying China National Building Material Company Limited (HKG:3323)?

China National Building Material Company Limited (HKG:3323), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$12.88 at one point, and dropping to the lows of HK$8.82. 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 National Building Material's current trading price of HK$9.14 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at China National Building Material’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for China National Building Material

Is China National Building Material still cheap?

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. 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 National Building Material’s ratio of 4.17x is trading slightly below its industry peers’ ratio of 5.75x, which means if you buy China National Building Material today, you’d be paying a reasonable price for it. And if you believe that China National Building Material 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. Is there another opportunity to buy low in the future? Since China National Building Material’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from China National Building Material?

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. China National Building Material's earnings over the next few years are expected to increase by 28%, 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? 3323’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at 3323? 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 3323, 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 3323, 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 National Building Material at this point in time. For example - China National Building Material has 3 warning signs we think you should be aware of.

If you are no longer interested in China National Building Material, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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.

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