Is It Too Late To Consider Buying Eco World International Berhad (KLSE:EWINT)?

Eco World International Berhad (KLSE:EWINT), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the KLSE. Less-covered, small caps tend to present 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? Let’s examine Eco World International Berhad’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Eco World International Berhad

Is Eco World International Berhad still cheap?

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. 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 14.49x is currently trading slightly below its industry peers’ ratio of 15.26x, which means if you buy Eco World International Berhad today, you’d be paying a reasonable price for it. And if you believe that Eco World International 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. So, is there another chance to buy low in the future? Given that Eco World International 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 Eco World International Berhad?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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. However, with a negative profit growth of -8.7% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Eco World International Berhad. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Currently, EWINT appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on EWINT, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on EWINT for a while, now may not be the most optimal 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 EWINT should the price fluctuate below the industry PE ratio.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Eco World International Berhad (of which 1 makes us a bit uncomfortable!) you should know about.

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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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