Is It Time To Consider Buying PAX Global Technology Limited (HKG:327)?

While PAX Global Technology Limited (HKG:327) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price increase on the SEHK over the last few months. 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 PAX Global Technology’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for PAX Global Technology

What is PAX Global Technology worth?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 PAX Global Technology’s ratio of 13.11x is trading slightly below its industry peers’ ratio of 14.33x, which means if you buy PAX Global Technology today, you’d be paying a decent price for it. And if you believe that PAX Global Technology should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, it seems like PAX Global Technology’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from PAX Global Technology?

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. 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. With profit expected to grow by 77% over the next couple of years, the future seems bright for PAX Global Technology. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? 327’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. 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 327? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on 327, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for 327, 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.

So while earnings quality is important, it's equally important to consider the risks facing PAX Global Technology at this point in time. Every company has risks, and we've spotted 2 warning signs for PAX Global Technology you should know about.

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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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