Is Sinosoft Technology Group Limited (HKG:1297) Potentially Undervalued?

Sinosoft Technology Group Limited (HKG:1297), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the SEHK. 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 take a look at Sinosoft Technology Group’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Sinosoft Technology Group

Is Sinosoft Technology Group still cheap?

Good news, investors! Sinosoft Technology Group is still a bargain right now according to my price multiple model, which compares 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 5.59x is currently well-below the industry average of 43.06x, meaning that it is trading at a cheaper price relative to its peers. Sinosoft Technology Group’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its industry peers, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

What kind of growth will Sinosoft Technology Group generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Though in the case of Sinosoft Technology Group, it is expected to deliver a negative earnings growth of -3.4%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? Although 1297 is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. I recommend you think about whether you want to increase your portfolio exposure to 1297, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping tabs on 1297 for some time, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

If you want to dive deeper into Sinosoft Technology Group, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with Sinosoft Technology Group, and understanding this should be part of your investment process.

If you are no longer interested in Sinosoft Technology 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. 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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