Is Now An Opportune Moment To Examine PAX Global Technology Limited (HKG:327)?

PAX Global Technology Limited (HKG:327), might not be a large cap stock, but it saw a decent share price growth in the teens level on the SEHK over the last few months. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today I will analyse the most recent data on PAX Global Technology’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for PAX Global Technology

What's the opportunity in PAX Global Technology?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio 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 PAX Global Technology’s ratio of 6.96x is trading slightly below its industry peers’ ratio of 7.43x, which means if you buy PAX Global Technology today, you’d be paying a decent price for it. And if you believe PAX Global Technology should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. 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.

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. PAX Global Technology's earnings over the next few years are expected to increase by 70%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

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.

So while earnings quality is important, it's equally important to consider the risks facing PAX Global Technology at this point in time. For example, PAX Global Technology has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.