When Should You Buy Tian Ge Interactive Holdings Limited (HKG:1980)?

By
Simply Wall St
Published
April 30, 2021
SEHK:1980
Source: Shutterstock

Tian Ge Interactive Holdings Limited (HKG:1980), 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. 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 Tian Ge Interactive Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Tian Ge Interactive Holdings

Is Tian Ge Interactive Holdings still cheap?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. 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 20.95x is currently trading slightly below its industry peers’ ratio of 21x, which means if you buy Tian Ge Interactive Holdings today, you’d be paying a reasonable price for it. And if you believe Tian Ge Interactive 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. So, is there another chance to buy low in the future? Given that Tian Ge Interactive Holdings’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Tian Ge Interactive Holdings generate?

earnings-and-revenue-growth
SEHK:1980 Earnings and Revenue Growth April 30th 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 an expected decline of -16% in revenues over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Tian Ge Interactive Holdings. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? 1980 seems priced close to industry peers right now, 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 beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on 1980, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on 1980 for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This 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 crystallize your views on 1980 should the price fluctuate below the industry PE ratio.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For instance, we've identified 3 warning signs for Tian Ge Interactive Holdings (1 shouldn't be ignored) you should be familiar with.

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