Should You Think About Buying Soken Chemical & Engineering Co., Ltd. (TYO:4972) Now?

While Soken Chemical & Engineering Co., Ltd. (TYO:4972) might not be the most widely known stock at the moment, it saw a significant share price rise of over 20% in the past couple of months on the JASDAQ. Less-covered, small caps tend to present 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 Soken Chemical & Engineering’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Soken Chemical & Engineering

What is Soken Chemical & Engineering worth?

Great news for investors – Soken Chemical & Engineering is still trading at a fairly cheap price 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 Soken Chemical & Engineering’s ratio of 7.83x is below its peer average of 16.33x, which indicates the stock is trading at a lower price compared to the Chemicals industry. However, given that Soken Chemical & Engineering’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Soken Chemical & Engineering?

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. Though in the case of Soken Chemical & Engineering, it is expected to deliver a negative earnings growth of -6.3%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? Although 4972 is currently trading below the industry PE ratio, the negative profit outlook does bring on some uncertainty, which equates to higher risk. I recommend you think about whether you want to increase your portfolio exposure to 4972, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping an eye on 4972 for a while, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

If you'd like to know more about Soken Chemical & Engineering as a business, it's important to be aware of any risks it's facing. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Soken Chemical & Engineering.

If you are no longer interested in Soken Chemical & Engineering, 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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