Is It Too Late To Buy Japfa Ltd. (SGX:UD2) At Its June Price?

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Japfa Ltd. (SGX:UD2) is considered a high growth stock. However its last closing price of SGD0.52 left investors wondering whether this growth has already been factored into the share price. Below I will be talking through a basic metric which will help answer this question.

View our latest analysis for Japfa

Where’s the growth?

Investors in Japfa have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. Expectations from 4 analysts are buoyant with earnings forecasted to rise significantly from today’s level of $0.0497 to $0.0617 over the next three years. This results in an annual growth rate of 11%, on average, which illustrates an optimistic outlook in the near term.

Is UD2 available at a good price after accounting for its growth?

Japfa is available at a price-to-earnings ratio of 7.71x, showing us it is undervalued relative to the current SG market average of 12.65x , and undervalued based on its latest annual earnings update compared to the Food average of 17.04x .

SGX:UD2 Price Estimation Relative to Market, June 25th 2019
SGX:UD2 Price Estimation Relative to Market, June 25th 2019

We already know that UD2 appears to be undervalued based on its PE ratio, compared to the industry average. However, to properly examine the value of a high-growth stock such as Japfa, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 7.71x and expected year-on-year earnings growth of 11% give Japfa a very low PEG ratio of 0.69x. This tells us that when we include its growth in our analysis Japfa’s stock can be considered relatively cheap , based on its fundamentals.

What this means for you:

UD2’s current undervaluation could signal a potential buying opportunity to increase your exposure to the stock, or it you’re a potential investor, now may be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Financial Health: Are UD2’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has UD2 been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of UD2’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.