Stock Analysis

Should You Investigate Shinpo Co., Ltd. (TYO:5903) At JP¥1,162?

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TSE:5903
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Shinpo Co., Ltd. (TYO:5903), is not the largest company out there, but it had a relatively subdued couple of weeks in terms of changes in share price, which continued to float around the range of JP¥1,114 to JP¥1,218. However, is this the true valuation level of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Shinpo’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 Shinpo

What's the opportunity in Shinpo?

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 20.05x is currently trading slightly above its industry peers’ ratio of 16.74x, which means if you buy Shinpo today, you’d be paying a relatively sensible price for it. And if you believe Shinpo 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 Shinpo’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 does the future of Shinpo look like?

earnings-and-revenue-growth
JASDAQ:5903 Earnings and Revenue Growth April 22nd 2021

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 40% over the next couple of years, the future seems bright for Shinpo. 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? It seems like the market has already priced in 5903’s positive outlook, 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 5903? 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 5903, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for 5903, 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 Shinpo at this point in time. To that end, you should learn about the 4 warning signs we've spotted with Shinpo (including 1 which is potentially serious).

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About TSE:5903

Shinpo

Shinpo Co., Ltd. manufactures and sells smokeless grills in Japan, China, South Korea, Taiwan, and internationally.

Excellent balance sheet with acceptable track record.

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