TCL Electronics Holdings Limited (HKG:1070), is not the largest company out there, but it saw a significant share price rise of over 20% in the past couple of months on the SEHK. 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? Today I will analyse the most recent data on TCL Electronics Holdings's outlook and valuation to see if the opportunity still exists.

View our latest analysis for TCL Electronics Holdings

What's The Opportunity In TCL Electronics Holdings?

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. 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 10.35x is currently trading slightly above its industry peers' ratio of 9.08x, which means if you buy TCL Electronics Holdings today, you'd be paying a relatively reasonable price for it. And if you believe TCL Electronics Holdings should be trading in this range, then there isn't really any room for the share price grow beyond the levels of other industry peers over the long-term. In addition to this, it seems like TCL Electronics Holdings's share price is quite stable, which could mean there may be less chances to buy low in the future now that it's trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

What does the future of TCL Electronics Holdings 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. However, with a negative profit growth of -3.5% expected over the next couple of years, near-term growth certainly doesn't appear to be a driver for a buy decision for TCL Electronics Holdings. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Currently, 1070 appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on 1070, take a look at whether its fundamentals have changed.

Are you a potential investor? If you've been keeping an eye on 1070 for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there's less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven't considered today, which can help crystallize your views on 1070 should the price fluctuate below the industry PE ratio.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. When we did our research, we found 5 warning signs for TCL Electronics Holdings (1 doesn't sit too well with us!) that we believe deserve your full attention.

If you are no longer interested in TCL Electronics Holdings, 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.