Should You Think About Buying LOTTE Fine Chemical Co., Ltd. (KRX:004000) Now?

LOTTE Fine Chemical Co., Ltd. (KRX:004000), 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. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s examine LOTTE Fine Chemical’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for LOTTE Fine Chemical

What's the opportunity in LOTTE Fine Chemical?

Great news for investors – LOTTE Fine Chemical 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 LOTTE Fine Chemical’s ratio of 6.84x is below its peer average of 13.79x, which indicates the stock is trading at a lower price compared to the Chemicals industry. However, given that LOTTE Fine Chemical’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 LOTTE Fine Chemical?

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. However, with a negative profit growth of -13% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for LOTTE Fine Chemical. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Although A004000 is currently trading below the industry PE ratio, the negative profit outlook does bring on some uncertainty, which equates to higher risk. Consider whether you want to increase your portfolio exposure to A004000, 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 tabs on A004000 for some time, 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.

Diving deeper into the forecasts for LOTTE Fine Chemical mentioned earlier will help you understand how analysts view the stock going forward. So feel free to check out our free graph representing analyst forecasts.

If you are no longer interested in LOTTE Fine Chemical, 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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