Is There Now An Opportunity In Asahi Rubber Inc. (TYO:5162)?

While Asahi Rubber Inc. (TYO:5162) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the JASDAQ, rising to highs of JP¥806 and falling to the lows of JP¥602. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Asahi Rubber's current trading price of JP¥634 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Asahi Rubber’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Asahi Rubber

Is Asahi Rubber still cheap?

Asahi Rubber appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and 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 Asahi Rubber’s ratio of 30.02x is above its peer average of 15.89x, which suggests the stock is trading at a higher price compared to the Machinery industry. Furthermore, Asahi Rubber’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach levels around its industry peers, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

Can we expect growth from Asahi Rubber?

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. 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. Asahi Rubber'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 5162’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe 5162 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 5162 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 positive outlook is encouraging for 5162, 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 Asahi Rubber, you'd also look into what risks it is currently facing. When we did our research, we found 4 warning signs for Asahi Rubber (1 shouldn't be ignored!) that we believe deserve your full attention.

If you are no longer interested in Asahi Rubber, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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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