Stock Analysis

Is It Time To Consider Buying Gamuda Berhad (KLSE:GAMUDA)?

KLSE:GAMUDA
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While Gamuda Berhad (KLSE:GAMUDA) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10% in the past couple of months on the KLSE. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s examine Gamuda Berhad’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Gamuda Berhad

Is Gamuda Berhad Still Cheap?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to 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 13.16x is currently trading slightly below its industry peers’ ratio of 17.16x, which means if you buy Gamuda Berhad today, you’d be paying a reasonable price for it. And if you believe that Gamuda Berhad should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, it seems like Gamuda Berhad’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.

What kind of growth will Gamuda Berhad generate?

earnings-and-revenue-growth
KLSE:GAMUDA Earnings and Revenue Growth September 28th 2022

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. Though in the case of Gamuda Berhad, it is expected to deliver a negative earnings growth of -6.1%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What This Means For You

Are you a shareholder? GAMUDA seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on GAMUDA, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on GAMUDA for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystallize your views on GAMUDA should the price fluctuate below the industry PE ratio.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example - Gamuda Berhad has 2 warning signs we think you should be aware of.

If you are no longer interested in Gamuda Berhad, 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.