When Should You Buy Bumitama Agri Ltd. (SGX:P8Z)?

Bumitama Agri Ltd. (SGX:P8Z), is not the largest company out there, but it received a lot of attention from a substantial price movement on the SGX over the last few months, increasing to S$0.57 at one point, and dropping to the lows of S$0.50. 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 Bumitama Agri's current trading price of S$0.54 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Bumitama Agri’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Bumitama Agri

What is Bumitama Agri 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 Bumitama Agri’s ratio of 11.16x is trading slightly below its industry peers’ ratio of 12.18x, which means if you buy Bumitama Agri today, you’d be paying a reasonable price for it. And if you believe that Bumitama Agri 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. Although, there may be an opportunity to buy in the future. This is because Bumitama Agri’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 Bumitama Agri 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. 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. However, with a negative profit growth of -6.4% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Bumitama Agri. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? P8Z 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 P8Z, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on P8Z for a while, now may not be the most advantageous 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 crystallize your views on P8Z should the price fluctuate below the industry PE ratio.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, Bumitama Agri has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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This article by Simply Wall St is general in nature. 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.
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