Is Kronologi Asia Berhad (KLSE:KRONO) Potentially Undervalued?

Kronologi Asia Berhad (KLSE:KRONO), might not be a large cap stock, but it saw a decent share price growth of 15% on the KLSE over the last few months. While good news for shareholders, the company has traded much higher in the past year. 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 examine Kronologi Asia Berhad’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Kronologi Asia Berhad

What's The Opportunity In Kronologi Asia Berhad?

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 Kronologi Asia Berhad’s ratio of 49.43x is trading slightly above its industry peers’ ratio of 43.55x, which means if you buy Kronologi Asia Berhad today, you’d be paying a relatively sensible price for it. And if you believe Kronologi Asia 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. Is there another opportunity to buy low in the future? Since Kronologi Asia Berhad’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will Kronologi Asia Berhad generate?

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. In Kronologi Asia Berhad's case, its earnings over the next year are expected to double, indicating an incredibly 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? KRONO’s optimistic 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 financial strength of the company. Have these factors changed since the last time you looked at KRONO? 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 KRONO, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for KRONO, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example - Kronologi Asia Berhad has 3 warning signs we think you should be aware of.

If you are no longer interested in Kronologi Asia 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.