Is KH Neochem Co., Ltd. (TSE:4189) Potentially Undervalued?

While KH Neochem Co., Ltd. (TSE:4189) might not have the largest market cap around , it saw significant share price movement during recent months on the TSE, rising to highs of JP¥2,424 and falling to the lows of JP¥1,964. 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 KH Neochem's current trading price of JP¥1,964 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 KH Neochem’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 KH Neochem

What's The Opportunity In KH Neochem?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’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 10.24x is currently trading slightly below its industry peers’ ratio of 12.75x, which means if you buy KH Neochem today, you’d be paying a decent price for it. And if you believe that KH Neochem should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, it seems like KH Neochem’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will KH Neochem generate?

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. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 42% over the next couple of years, the future seems bright for KH Neochem. 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 4189’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 4189? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on 4189, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for 4189, 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.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. You'd be interested to know, that we found 1 warning sign for KH Neochem and you'll want to know about it.

If you are no longer interested in KH Neochem, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com