Let's talk about the popular Sea Limited (NYSE:SE). The company's shares received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$56.90 at one point, and dropping to the lows of US$35.21. 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 Sea's current trading price of US$37.57 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let's take a look at Sea's outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
View our latest analysis for Sea
Is Sea Still Cheap?
According to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. 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 Sea's ratio of 30.98x is above its peer average of 21.22x, which suggests the stock is trading at a higher price compared to the Entertainment industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Sea'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.
Can we expect growth from Sea?
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 -4.6% expected over the next couple of years, near-term growth certainly doesn't appear to be a driver for a buy decision for Sea. This certainty tips the risk-return scale towards higher risk.
What This Means For You
Are you a shareholder? If you believe SE 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. Given the risk from a negative growth outlook, this could be the right time to reduce your total portfolio risk. 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 an eye on SE for a while, now may not be the best time to enter into the stock. Its price has risen beyond its industry peers, on top of a negative future outlook. However, there are also other important factors which we haven't considered today, such as the track record of its management. Should the price fall in the future, will you be well-informed enough to buy?
Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example - Sea has 1 warning sign we think you should be aware of.
If you are no longer interested in Sea, 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.