Is Cloud Music Inc. (HKG:9899) Potentially Undervalued?

While Cloud Music Inc. (HKG:9899) might not have the largest market cap around , it saw a double-digit share price rise of over 10% in the past couple of months on the SEHK. The company is inching closer to its yearly highs following the recent share price climb. 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. But what if there is still an opportunity to buy? Let’s examine Cloud Music’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Cloud Music

What Is Cloud Music Worth?

According to our valuation model, Cloud Music seems to be fairly priced at around 0.58% above our intrinsic value, which means if you buy Cloud Music today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is HK$95.94, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because Cloud Music’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will Cloud Music generate?

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. Cloud Music's earnings over the next few years are expected to increase by 93%, 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 9899’s positive outlook, with shares trading around its fair value. 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 the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping tabs on 9899, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, 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.

Diving deeper into the forecasts for Cloud Music mentioned earlier will help you understand how analysts view the stock going forward. So feel free to check out our free graph representing analyst forecasts.

If you are no longer interested in Cloud Music, 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.