Is Mitsubishi Gas Chemical Company, Inc. (TSE:4182) Potentially Undervalued?

Mitsubishi Gas Chemical Company, Inc. (TSE:4182), 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 TSE. The recent rally in share prices has nudged the company in the right direction, though it still falls short of its yearly peak. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s examine Mitsubishi Gas Chemical Company’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Mitsubishi Gas Chemical Company

What's The Opportunity In Mitsubishi Gas Chemical Company?

Mitsubishi Gas Chemical Company is currently expensive based on our price multiple model, where we look at the company's price-to-earnings ratio in comparison to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Mitsubishi Gas Chemical Company’s ratio of 17.46x is above its peer average of 12.15x, which suggests the stock is trading at a higher price compared to the Chemicals industry. Another thing to keep in mind is that Mitsubishi Gas Chemical Company’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards the levels of its industry peers over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard for it to fall back down into an attractive buying range again.

What does the future of Mitsubishi Gas Chemical Company look like?

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. Mitsubishi Gas Chemical Company'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? 4182’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe 4182 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 4182 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 4182, which means it’s worth diving deeper into other factors 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 Mitsubishi Gas Chemical Company at this point in time. For example - Mitsubishi Gas Chemical Company has 2 warning signs we think you should be aware of.

If you are no longer interested in Mitsubishi Gas Chemical Company, 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. 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.