Should You Think About Buying Shanghai Fudan Microelectronics Group Company Limited (HKG:1385) Now?

Shanghai Fudan Microelectronics Group Company Limited (HKG:1385), is not the largest company out there, but it led the SEHK gainers with a relatively large price hike in the past couple of weeks. As a HK$38b market-cap stock, it seems odd Shanghai Fudan Microelectronics Group is not more well-covered by analysts. However, this is not necessarily a bad thing given that there are less eyes on the stock to push it closer to fair value. Is there still an opportunity to buy? Let’s take a look at Shanghai Fudan Microelectronics Group’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Shanghai Fudan Microelectronics Group

What's the opportunity in Shanghai Fudan Microelectronics Group?

Shanghai Fudan Microelectronics Group is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison to the industry average. 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 Shanghai Fudan Microelectronics Group’s ratio of 26.5x is above its peer average of 12.3x, which suggests the stock is trading at a higher price compared to the Semiconductor industry. Another thing to keep in mind is that Shanghai Fudan Microelectronics Group’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards the levels of its industry peers over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard for it to fall back down into an attractive buying range again.

Can we expect growth from Shanghai Fudan Microelectronics Group?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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 revenue growth of 9.3% expected in the upcoming year, short term growth doesn’t seem like a key driver for a buy decision for Shanghai Fudan Microelectronics Group.

What this means for you:

Are you a shareholder? 1385’s future growth appears to have been factored into the current share price, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe 1385 should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio 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 tabs on 1385 for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. While conducting our analysis, we found that Shanghai Fudan Microelectronics Group has 2 warning signs and it would be unwise to ignore these.

If you are no longer interested in Shanghai Fudan Microelectronics Group, 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.