What Does Sembcorp Industries Ltd's (SGX:U96) Share Price Indicate?

While Sembcorp Industries Ltd (SGX:U96) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the SGX, rising to highs of S$2.99 and falling to the lows of S$2.70. 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 Sembcorp Industries' current trading price of S$2.92 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Sembcorp Industries’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Sembcorp Industries

What is Sembcorp Industries worth?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 19.6x is currently trading slightly above its industry peers’ ratio of 16.82x, which means if you buy Sembcorp Industries today, you’d be paying a relatively reasonable price for it. And if you believe Sembcorp Industries should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Furthermore, it seems like Sembcorp Industries’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will Sembcorp Industries generate?

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. Sembcorp Industries' earnings over the next few years are expected to increase by 99%, 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? U96’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at U96? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on U96, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for U96, which means it’s worth further examining other factors such as the strength of its balance sheet, 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 Sembcorp Industries at this point in time. To that end, you should learn about the 2 warning signs we've spotted with Sembcorp Industries (including 1 which can't be ignored).

If you are no longer interested in Sembcorp Industries, 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.