Is Yangzijiang Shipbuilding (Holdings) Ltd. (SGX:BS6) Potentially Undervalued?

Yangzijiang Shipbuilding (Holdings) Ltd. (SGX:BS6), is not the largest company out there, but it led the SGX gainers with a relatively large price hike in the past couple of weeks. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Today I will analyse the most recent data on Yangzijiang Shipbuilding (Holdings)’s outlook and valuation to see if the opportunity still exists.

Our analysis indicates that BS6 is potentially undervalued!

What Is Yangzijiang Shipbuilding (Holdings) Worth?

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 Yangzijiang Shipbuilding (Holdings)’s ratio of 7.13x is trading slightly below its industry peers’ ratio of 8.16x, which means if you buy Yangzijiang Shipbuilding (Holdings) today, you’d be paying a reasonable price for it. And if you believe Yangzijiang Shipbuilding (Holdings) 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. Although, there may be an opportunity to buy in the future. This is because Yangzijiang Shipbuilding (Holdings)’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What does the future of Yangzijiang Shipbuilding (Holdings) look like?

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. 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. However, with a negative profit growth of -18% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Yangzijiang Shipbuilding (Holdings). This certainty tips the risk-return scale towards higher risk.

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 tabs 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Yangzijiang Shipbuilding (Holdings), and understanding this should be part of your investment process.

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.