China Leadshine Technology Co., Ltd. (SZSE:002979), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the SZSE. 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 take a look at China Leadshine Technology's outlook and value based on the most recent financial data to see if the opportunity still exists.
See our latest analysis for China Leadshine Technology
What Is China Leadshine Technology Worth?
Great news for investors – China Leadshine Technology is still trading at a fairly cheap price according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. 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 32.96x is currently well-below the industry average of 46.67x, meaning that it is trading at a cheaper price relative to its peers. What's more interesting is that, China Leadshine Technology's share price is quite stable, which could mean two things: firstly, it may take the share price a while to move closer to its industry peers, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.
What does the future of China Leadshine Technology 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. Though in the case of China Leadshine Technology, it is expected to deliver a negative earnings growth of -4.9%, which doesn't help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What This Means For You
Are you a shareholder? Although 002979 is currently trading below the industry PE ratio, the negative profit outlook does bring on some uncertainty, which equates to higher risk. I recommend you think about whether you want to increase your portfolio exposure to 002979, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you've been keeping an eye on 002979 for a while, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
So while earnings quality is important, it's equally important to consider the risks facing China Leadshine Technology at this point in time. For example - China Leadshine Technology has 2 warning signs we think you should be aware of.
If you are no longer interested in China Leadshine Technology, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.