Is Now An Opportune Moment To Examine Chinasoft International Limited (HKG:354)?

Chinasoft International Limited (HKG:354), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the SEHK. 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? Today I will analyse the most recent data on Chinasoft International’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Chinasoft International

What is Chinasoft International worth?

Chinasoft International 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 Chinasoft International’s ratio of 26.59x is above its peer average of 13.42x, which suggests the stock is trading at a higher price compared to the IT industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Chinasoft International’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Chinasoft International 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. Chinasoft International's earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in 354’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe 354 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 an eye on 354 for a while, 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 optimistic prospect is encouraging for 354, which 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 Chinasoft International, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Chinasoft International has 2 warning signs and it would be unwise to ignore 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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