Is Now The Time To Look At Buying Fufeng Group Limited (HKG:546)?

Fufeng Group Limited (HKG:546), is not the largest company out there, but it received a lot of attention from a substantial price increase on the SEHK over the last few months. 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 Fufeng Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Fufeng Group

What's the opportunity in Fufeng Group?

The stock is currently trading at HK$3.64 on the share market, which means it is overvalued by 33% compared to my intrinsic value of HK$2.74. This means that the buying opportunity has probably disappeared for now. But, is there another opportunity to buy low in the future? Since Fufeng Group’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. 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 Fufeng Group?

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 relatively muted profit growth of 8.8% expected over the next year, growth doesn’t seem like a key driver for a buy decision for Fufeng Group, at least in the short term.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in 546’s future outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe 546 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 546 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 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 Fufeng Group, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 3 warning signs for Fufeng Group and you'll want to know about them.

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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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