Is Now An Opportune Moment To Examine SCGM Bhd (KLSE:SCGM)?

SCGM Bhd (KLSE:SCGM), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the KLSE over the last few months. 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? Let’s take a look at SCGM Bhd’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for SCGM Bhd

What's the opportunity in SCGM Bhd?

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. 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 SCGM Bhd’s ratio of 12.61x is trading slightly below its industry peers’ ratio of 13.06x, which means if you buy SCGM Bhd today, you’d be paying a decent price for it. And if you believe SCGM Bhd should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, SCGM Bhd’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

Can we expect growth from SCGM Bhd?

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. Though in the case of SCGM Bhd, it is expected to deliver a relatively unexciting earnings growth of 1.6%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for SCGM Bhd, at least in the near term.

What this means for you:

Are you a shareholder? SCGM’s future growth appears to have been factored into the current share price, 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 SCGM? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on SCGM, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean 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. In terms of investment risks, we've identified 1 warning sign with SCGM Bhd, and understanding it should be part of your investment process.

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This article by Simply Wall St is general in nature. 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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