Gadang Holdings Berhad (KLSE:GADANG), might not be a large cap stock, but it saw a decent share price growth in the teens level on the KLSE over the last few months. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s examine Gadang Holdings Berhad’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Is Gadang Holdings Berhad still cheap?
Gadang Holdings Berhad appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. I’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 27.67x is currently well-above the industry average of 19.36x, meaning that it is trading at a more expensive price relative to its peers. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Gadang Holdings Berhad’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.
What does the future of Gadang Holdings Berhad look like?
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. Gadang Holdings Berhad's earnings over the next few years are expected to double, indicating a very 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? GADANG’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 GADANG 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 an eye on GADANG for a while, 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 positive outlook is encouraging for GADANG, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
If you want to dive deeper into Gadang Holdings Berhad, you'd also look into what risks it is currently facing. For example, Gadang Holdings Berhad has 3 warning signs (and 1 which is concerning) we think you should know about.
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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.
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Gadang Holdings Berhad
Gadang Holdings Berhad, an investment holding company, engages in civil engineering and construction, property development, water supply, and mechanical and electrical engineering businesses in Malaysia, Indonesia, and Singapore.
Flawless balance sheet with reasonable growth potential.