What Does Ultrafabrics Holdings Co.,Ltd.'s (TYO:4235) Share Price Indicate?

Ultrafabrics Holdings Co.,Ltd. (TYO:4235), 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 JASDAQ. 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? Let’s examine Ultrafabrics HoldingsLtd’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Ultrafabrics HoldingsLtd

Is Ultrafabrics HoldingsLtd still cheap?

Ultrafabrics HoldingsLtd is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison 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 68.23x is currently well-above the industry average of 16.41x, meaning that it is trading at a more expensive price relative to its peers. But, is there another opportunity to buy low in the future? Since Ultrafabrics HoldingsLtd’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of Ultrafabrics HoldingsLtd look like?

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 more than double over the next couple of years, the future seems bright for Ultrafabrics HoldingsLtd. 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 well and truly priced in 4235’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe 4235 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 tabs on 4235 for some time, 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 4235, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you'd like to know more about Ultrafabrics HoldingsLtd as a business, it's important to be aware of any risks it's facing. When we did our research, we found 5 warning signs for Ultrafabrics HoldingsLtd (1 doesn't sit too well with us!) that we believe deserve your full attention.

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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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