Is Pestech International Berhad (KLSE:PESTECH) Potentially Undervalued?

While Pestech International Berhad (KLSE:PESTECH) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the KLSE, rising to highs of RM0.65 and falling to the lows of RM0.41. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Pestech International Berhad's current trading price of RM0.41 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Pestech International Berhad’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Pestech International Berhad

What's the opportunity in Pestech International Berhad?

Great news for investors – Pestech International Berhad 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 Pestech International Berhad’s ratio of 7.18x is below its peer average of 19.24x, which indicates the stock is trading at a lower price compared to the Construction industry. Another thing to keep in mind is that Pestech International Berhad’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 its industry peers, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.

What kind of growth will Pestech International Berhad 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. However, with a negative profit growth of -7.5% expected next year, near-term growth certainly doesn’t appear to be a driver for a buy decision for Pestech International Berhad. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Although PESTECH is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. Consider whether you want to increase your portfolio exposure to PESTECH, 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 PESTECH 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.

So while earnings quality is important, it's equally important to consider the risks facing Pestech International Berhad at this point in time. Every company has risks, and we've spotted 5 warning signs for Pestech International Berhad (of which 2 make us uncomfortable!) you should know about.

If you are no longer interested in Pestech International 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.