Stock Analysis

At HK$2.36, Is It Time To Put China BlueChemical Ltd. (HKG:3983) On Your Watch List?

SEHK:3983
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China BlueChemical Ltd. (HKG:3983), might not be a large cap stock, but it led the SEHK gainers with a relatively large price hike in the past couple of weeks. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s examine China BlueChemical’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for China BlueChemical

What's the opportunity in China BlueChemical?

According to my valuation model, China BlueChemical seems to be fairly priced at around 5.09% above my intrinsic value, which means if you buy China BlueChemical today, you’d be paying a relatively fair price for it. And if you believe that the stock is really worth HK$2.25, there’s only an insignificant downside when the price falls to its real value. Furthermore, China BlueChemical’s low beta implies that the stock is less volatile than the wider market.

What kind of growth will China BlueChemical generate?

earnings-and-revenue-growth
SEHK:3983 Earnings and Revenue Growth June 29th 2021

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. However, with a negative profit growth of -0.09% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for China BlueChemical. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Currently, 3983 appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on 3983 for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on 3983 should the price fluctuate below its true value.

If you want to dive deeper into China BlueChemical, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for China BlueChemical you should be aware of.

If you are no longer interested in China BlueChemical, 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. 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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