Is There Now An Opportunity In Lotte Confectionery Co., Ltd. (KRX:280360)?

Lotte Confectionery Co., Ltd. (KRX:280360), might not be a large cap stock, but it saw its share price hover around a small range of ₩98,100 to ₩106,500 over the last few weeks. But is this actually reflective of the share value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Lotte Confectionery’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Lotte Confectionery

What's the opportunity in Lotte Confectionery?

Lotte Confectionery 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. 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 Lotte Confectionery’s ratio of 20.19x is above its peer average of 12.91x, which suggests the stock is trading at a higher price compared to the Food industry. Another thing to keep in mind is that Lotte Confectionery’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.

Can we expect growth from Lotte Confectionery?

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. In Lotte Confectionery's case, its earnings over the next year are expected to double, indicating an incredibly 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? A280360’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 A280360 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 A280360 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 optimistic prospect is encouraging for A280360, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. You'd be interested to know, that we found 3 warning signs for Lotte Confectionery and you'll want to know about them.

If you are no longer interested in Lotte Confectionery, 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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