Is Pacific Basin Shipping Limited (HKG:2343) Potentially Undervalued?

Pacific Basin Shipping Limited (HKG:2343), 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. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Pacific Basin Shipping’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Pacific Basin Shipping

What's The Opportunity In Pacific Basin Shipping?

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. 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 1.54x is currently trading slightly below its industry peers’ ratio of 2.62x, which means if you buy Pacific Basin Shipping today, you’d be paying a decent price for it. And if you believe that Pacific Basin Shipping 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. So, is there another chance to buy low in the future? Given that Pacific Basin Shipping’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 Pacific Basin Shipping generate?

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. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Pacific Basin Shipping, at least in the near future.

What This Means For You

Are you a shareholder? 2343 seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on 2343, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on 2343 for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystallize your views on 2343 should the price fluctuate below the industry PE ratio.

If you'd like to know more about Pacific Basin Shipping as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 4 warning signs we've spotted with Pacific Basin Shipping (including 1 which is potentially serious).

If you are no longer interested in Pacific Basin Shipping, 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.