At NT$161, Is Merida Industry Co., Ltd. (TWSE:9914) Worth Looking At Closely?

Merida Industry Co., Ltd. (TWSE:9914), might not be a large cap stock, but it saw significant share price movement during recent months on the TWSE, rising to highs of NT$247 and falling to the lows of NT$161. 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 Merida Industry's current trading price of NT$161 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 Merida Industry’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 Merida Industry

What Is Merida Industry Worth?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Merida Industry’s ratio of 31.54x is trading slightly above its industry peers’ ratio of 27.22x, which means if you buy Merida Industry today, you’d be paying a relatively reasonable price for it. And if you believe that Merida Industry should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Is there another opportunity to buy low in the future? Since Merida Industry’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of Merida Industry 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. Merida Industry's earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in 9914’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at 9914? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on 9914, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for 9914, which means it’s worth diving deeper into 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 Merida Industry at this point in time. For example - Merida Industry has 1 warning sign we think you should be aware of.

If you are no longer interested in Merida Industry, 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.