BAIC Motor Corporation Limited (HKG:1958), might not be a large cap stock, but it saw significant share price movement during recent months on the SEHK, rising to highs of HK$2.47 and falling to the lows of HK$2.03. 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 BAIC Motor's current trading price of HK$2.20 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let's take a look at BAIC Motor's outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Check out our latest analysis for BAIC Motor
What's The Opportunity In BAIC Motor?
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 3.67x is currently trading slightly below its industry peers' ratio of 6.77x, which means if you buy BAIC Motor today, you'd be paying a reasonable price for it. And if you believe that BAIC Motor 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 BAIC Motor'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 BAIC Motor?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let's also take a look at the company's future expectations. However, with a negative profit growth of -18% expected over the next couple of years, near-term growth certainly doesn't appear to be a driver for a buy decision for BAIC Motor. This certainty tips the risk-return scale towards higher risk.
What This Means For You
Are you a shareholder? 1958 seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk 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 1958, take a look at whether its fundamentals have changed.
Are you a potential investor? If you've been keeping tabs on 1958 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 gel your views on 1958 should the price fluctuate below the industry PE ratio.
If you'd like to know more about BAIC Motor as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 1 warning sign for BAIC Motor you should know about.
If you are no longer interested in BAIC Motor, 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.