Is There Now An Opportunity In SeA Mechanics Co., Ltd (KOSDAQ:396300)?

SeA Mechanics Co., Ltd (KOSDAQ:396300), might not be a large cap stock, but it led the KOSDAQ gainers with a relatively large price hike in the past couple of weeks. Shareholders may appreciate the recent price jump, but the company still has a way to go before reaching its yearly highs again. 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 we will analyse the most recent data on SeA Mechanics’s outlook and valuation to see if the opportunity still exists.

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What's The Opportunity In SeA Mechanics?

According to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. 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 62.55x is currently well-above the industry average of 14.84x, meaning that it is trading at a more expensive price relative to its peers. Furthermore, SeA Mechanics’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach levels around its industry peers, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

See our latest analysis for SeA Mechanics

What kind of growth will SeA Mechanics generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 more than double in the upcoming, the future appears to be extremely bright for SeA Mechanics. 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? A396300’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe A396300 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 A396300 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 A396300, 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. At Simply Wall St, we found 4 warning signs for SeA Mechanics and we think they deserve your attention.

If you are no longer interested in SeA Mechanics, 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.