Is It Too Late To Consider Buying China Everbright Water Limited (SGX:U9E)?

China Everbright Water Limited (SGX:U9E), might not be a large cap stock, but it had a relatively subdued couple of weeks in terms of changes in share price, which continued to float around the range of S$0.21 to S$0.23. However, is this the true valuation level of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at China Everbright Water’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 China Everbright Water

What is China Everbright Water worth?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 18% below my intrinsic value, which means if you buy China Everbright Water today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth SGD0.27, then there’s not much of an upside to gain from mispricing. In addition to this, China Everbright Water has a low beta, which suggests its share price is less volatile than the wider market.

What kind of growth will China Everbright Water generate?

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. With profit expected to grow by 35% over the next couple of years, the future seems bright for China Everbright Water. 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? U9E’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. 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 the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping an eye on U9E, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, 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.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Be aware that China Everbright Water is showing 2 warning signs in our investment analysis and 1 of those can't be ignored...

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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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