Is It Too Late To Consider Buying Silicon Optronics, Inc. (TPE:3530)?

While Silicon Optronics, Inc. (TPE:3530) might not be the most widely known stock at the moment, it saw a decent share price growth in the teens level 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 Silicon Optronics’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Silicon Optronics

What's the opportunity in Silicon Optronics?

Silicon Optronics is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Silicon Optronics’s ratio of 33.7x is above its peer average of 19.61x, which suggests the stock is trading at a higher price compared to the Electronic industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Silicon Optronics’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of Silicon Optronics look like?

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. In the upcoming year, Silicon Optronics' earnings are expected to increase by 26%, 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? It seems like the market has well and truly priced in 3530’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe 3530 should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on 3530 for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for 3530, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you'd like to know more about Silicon Optronics as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 1 warning sign for Silicon Optronics you should be aware of.

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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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