At NT$43.85, Is China General Plastics Corporation (TPE:1305) Worth Looking At Closely?

While China General Plastics Corporation (TPE:1305) might not be the most widely known stock at the moment, it saw a significant share price rise of over 20% in the past couple of months on the TSEC. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine China General Plastics’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for China General Plastics

What's the opportunity in China General Plastics?

Great news for investors – China General Plastics 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 14.89x is currently well-below the industry average of 21.24x, meaning that it is trading at a cheaper price relative to its peers. Although, there may be another chance to buy again in the future. This is because China General Plastics’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

Can we expect growth from China General Plastics?

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. However, with a relatively muted profit growth of 6.5% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for China General Plastics, at least in the short term.

What this means for you:

Are you a shareholder? Even though growth is relatively muted, since 1305 is currently trading below the industry PE ratio, it may be a great time to increase your holdings in the stock. However, there are also other factors such as capital structure to consider, which could explain the current price multiple.

Are you a potential investor? If you’ve been keeping an eye on 1305 for a while, now might be the time to make a leap. Its future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy 1305. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed assessment.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 3 warning signs for China General Plastics and we think they deserve your attention.

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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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