At NT$140, Is Nishoku Technology Inc. (TPE:3679) Worth Looking At Closely?

Nishoku Technology Inc. (TPE:3679), is not the largest company out there, but it received a lot of attention from a substantial price increase on the TSEC over the last few months. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Nishoku Technology’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Nishoku Technology

What's the opportunity in Nishoku Technology?

Great news for investors – Nishoku Technology is still trading at a fairly cheap price according to my price multiple model, where I compare the company's price-to-earnings ratio 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 12.1x is currently well-below the industry average of 19.76x, meaning that it is trading at a cheaper price relative to its peers. What’s more interesting is that, Nishoku Technology’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to move closer to its industry peers, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

What does the future of Nishoku Technology look like?

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. Though in the case of Nishoku Technology, it is expected to deliver a negative revenue growth of -1.8% next year, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? Although 3679 is currently trading below the industry PE ratio, the negative outlook does bring on some uncertainty, which equates to higher risk. Consider whether you want to increase your portfolio exposure to 3679, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping tabs on 3679 for some time, but hesitant on making the leap, I recommend you research further into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

If you want to dive deeper into Nishoku Technology, you'd also look into what risks it is currently facing. For instance, we've identified 4 warning signs for Nishoku Technology (1 doesn't sit too well with us) you should be familiar with.

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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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