PAX Global Technology Limited (HKG:327), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the SEHK. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? 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.
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 9.91x is trading slightly above its industry peers’ ratio of 8.69x, which means if you buy PAX Global Technology today, you’d be paying a relatively sensible price for it. And if you believe PAX Global Technology should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that PAX Global Technology’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will PAX Global Technology 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. With profit expected to grow by 35% 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 an eye 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.
If you want to dive deeper into PAX Global Technology, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for PAX Global Technology you should be mindful of and 1 of these can't be ignored.
If you are no longer interested in PAX Global Technology, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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.
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