At RM1.18, Is Texchem Resources Bhd (KLSE:TEXCHEM) Worth Looking At Closely?

Texchem Resources Bhd (KLSE:TEXCHEM), is not the largest company out there, 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? Today I will analyse the most recent data on Texchem Resources Bhd’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Texchem Resources Bhd

What's The Opportunity In Texchem Resources Bhd?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 Texchem Resources Bhd’s ratio of 16.09x is trading slightly above its industry peers’ ratio of 12.65x, which means if you buy Texchem Resources Bhd today, you’d be paying a relatively reasonable price for it. And if you believe that Texchem Resources Bhd should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Although, there may be an opportunity to buy in the future. This is because Texchem Resources Bhd’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What does the future of Texchem Resources Bhd look like?

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. Texchem Resources Bhd'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? It seems like the market has already priced in TEXCHEM’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at TEXCHEM? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on TEXCHEM, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for TEXCHEM, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you'd like to know more about Texchem Resources Bhd as a business, it's important to be aware of any risks it's facing. For instance, we've identified 5 warning signs for Texchem Resources Bhd (1 is a bit concerning) you should be familiar with.

If you are no longer interested in Texchem Resources Bhd, 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.