Today we're going to take a look at the well-established Lenovo Group Limited (HKG:992). The company's stock saw a double-digit share price rise of over 10% in the past couple of months on the SEHK. Shareholders may appreciate the recent price jump, but the company still has a way to go before reaching its yearly highs again. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company's outlook is already priced into the stock. But what if there is still an opportunity to buy? Let's take a look at Lenovo Group's outlook and value based on the most recent financial data to see if the opportunity still exists.
What's The Opportunity In Lenovo Group?
The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We'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 16.43x is currently trading slightly below its industry peers' ratio of 17.81x, which means if you buy Lenovo Group today, you'd be paying a reasonable price for it. And if you believe that Lenovo Group 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 Lenovo Group'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.
What kind of growth will Lenovo Group generate?
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. With profit expected to more than double over the next couple of years, the future seems bright for Lenovo Group. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What This Means For You
Are you a shareholder? 992's optimistic 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 financial strength of the company. Have these factors changed since the last time you looked at 992? 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 992, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for 992, which means it's worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
If you want to dive deeper into Lenovo Group, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 3 warning signs for Lenovo Group and you'll want to know about them.
If you are no longer interested in Lenovo Group, 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.