Is It Time To Consider Buying Yangzijiang Shipbuilding (Holdings) Ltd. (SGX:BS6)?

Yangzijiang Shipbuilding (Holdings) Ltd. (SGX:BS6), might not be a large cap stock, but it saw significant share price movement during recent months on the SGX, rising to highs of S$1.02 and falling to the lows of S$0.89. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Yangzijiang Shipbuilding (Holdings)'s current trading price of S$0.92 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Yangzijiang Shipbuilding (Holdings)’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Yangzijiang Shipbuilding (Holdings)

What's The Opportunity In Yangzijiang Shipbuilding (Holdings)?

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 Yangzijiang Shipbuilding (Holdings)’s ratio of 4.49x is trading slightly below its industry peers’ ratio of 9.06x, which means if you buy Yangzijiang Shipbuilding (Holdings) today, you’d be paying a reasonable price for it. And if you believe that Yangzijiang Shipbuilding (Holdings) 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 Yangzijiang Shipbuilding (Holdings)’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.

What kind of growth will Yangzijiang Shipbuilding (Holdings) 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. Though in the case of Yangzijiang Shipbuilding (Holdings), it is expected to deliver a highly negative earnings growth in the next few years, 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? BS6 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 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 BS6, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on BS6 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. In addition to this, 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 BS6 should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing Yangzijiang Shipbuilding (Holdings) at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Yangzijiang Shipbuilding (Holdings).

If you are no longer interested in Yangzijiang Shipbuilding (Holdings), 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.