Di Dong Il Corporation (KRX:001530), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the KOSE. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Today I will analyse the most recent data on Di Dong Il’s outlook and valuation to see if the opportunity still exists.
View our latest analysis for Di Dong Il
Is Di Dong Il still cheap?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 Di Dong Il’s ratio of 21.21x is trading slightly above its industry peers’ ratio of 17.11x, which means if you buy Di Dong Il today, you’d be paying a relatively reasonable price for it. And if you believe that Di Dong Il should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Furthermore, it seems like Di Dong Il’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.
Can we expect growth from Di Dong Il?
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 Di Dong Il. 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? A001530’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at A001530? 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 A001530, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for A001530, 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 Di Dong Il at this point in time. For example - Di Dong Il has 4 warning signs we think you should be aware of.
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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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About KOSE:A001530
Di Dong Il
Operates in the textile and clothing industries in South Korea and internationally.
Adequate balance sheet with moderate growth potential.
