At RM1.36, Is S P Setia Berhad (KLSE:SPSETIA) Worth Looking At Closely?

While S P Setia Berhad (KLSE:SPSETIA) might not have the largest market cap around , it saw a significant share price rise of 32% in the past couple of months on the KLSE. The recent rally in share prices has nudged the company in the right direction, though it still falls short of its yearly peak. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine S P Setia Berhad’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for S P Setia Berhad

Is S P Setia Berhad Still Cheap?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that S P Setia Berhad’s ratio of 14.4x is trading slightly above its industry peers’ ratio of 13.69x, which means if you buy S P Setia Berhad today, you’d be paying a relatively sensible price for it. And if you believe S P Setia Berhad should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that S P Setia 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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from S P Setia Berhad?

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 S P Setia Berhad, it is expected to deliver a negative earnings growth of -16%, 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? SPSETIA 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 SPSETIA, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on SPSETIA 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. Furthermore, 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 gel your views on SPSETIA should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing S P Setia Berhad at this point in time. Be aware that S P Setia Berhad is showing 4 warning signs in our investment analysis and 1 of those is a bit concerning...

If you are no longer interested in S P Setia Berhad, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.