Precision Tsugami (China) Corporation Limited (HKG:1651), which is in the machinery business, and is based in China, saw a double-digit share price rise of over 10% in the past couple of months on the SEHK. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Precision Tsugami (China)’s outlook and valuation to see if the opportunity still exists.
Is Precision Tsugami (China) still cheap?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 Precision Tsugami (China)’s ratio of 8.61x is trading slightly below its industry peers’ ratio of 9.97x, which means if you buy Precision Tsugami (China) today, you’d be paying a decent price for it. And if you believe that Precision Tsugami (China) should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. So, is there another chance to buy low in the future? Given that Precision Tsugami (China)’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from Precision Tsugami (China)?
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. However, with a relatively muted profit growth of 5.0% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Precision Tsugami (China), at least in the short term.
What this means for you:
Are you a shareholder? 1651’s future growth appears to have been factored into the current share price, with shares trading around industry price multiples. 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 1651? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?
Are you a potential investor? If you’ve been keeping tabs on 1651, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Precision Tsugami (China). You can find everything you need to know about Precision Tsugami (China) in the latest infographic research report. If you are no longer interested in Precision Tsugami (China), you can use our free platform to see my list of over 50 other stocks with a high growth potential.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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