Is Now An Opportune Moment To Examine First Resources Limited (SGX:EB5)?

By
Simply Wall St
Published
November 08, 2021
SGX:EB5
Source: Shutterstock

While First Resources Limited (SGX:EB5) might not be the most widely known stock at the moment, it saw a significant share price rise of over 20% in the past couple of months on the SGX. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Today I will analyse the most recent data on First Resources’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for First Resources

What's the opportunity in First Resources?

First Resources is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison to the industry average. 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 20.83x is currently well-above the industry average of 10.97x, meaning that it is trading at a more expensive price relative to its peers. Another thing to keep in mind is that First Resources’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards the levels of its industry peers over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard for it to fall back down into an attractive buying range again.

What does the future of First Resources look like?

earnings-and-revenue-growth
SGX:EB5 Earnings and Revenue Growth November 9th 2021

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. With profit expected to grow by 80% over the next couple of years, the future seems bright for First Resources. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in EB5’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe EB5 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 EB5 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 EB5, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing First Resources at this point in time. While conducting our analysis, we found that First Resources has 1 warning sign and it would be unwise to ignore it.

If you are no longer interested in First Resources, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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