Is It Time To Consider Buying Hong Leong Asia Ltd. (SGX:H22)?

Hong Leong Asia Ltd. (SGX:H22), might not be a large cap stock, but it led the SGX gainers with a relatively large price hike in the past couple of weeks. The recent share price gains has brought the company back closer to its yearly peak. As a small cap stock, which tends to lack high analyst coverage, 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? Today we will analyse the most recent data on Hong Leong Asia’s outlook and valuation to see if the opportunity still exists.

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Is Hong Leong Asia Still Cheap?

Hong Leong Asia is currently expensive based on our price multiple model, where we look at the company's price-to-earnings ratio in comparison to the industry average. We’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 19.25x is currently well-above the industry average of 12.16x, meaning that it is trading at a more expensive price relative to its peers. Furthermore, Hong Leong Asia’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach levels around its industry peers, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

View our latest analysis for Hong Leong Asia

Can we expect growth from Hong Leong Asia?

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. Hong Leong Asia's earnings over the next few years are expected to increase by 47%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in H22’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe H22 should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on H22 for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for H22, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into Hong Leong Asia, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 1 warning sign for Hong Leong Asia and you'll want to know about it.

If you are no longer interested in Hong Leong Asia, 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.