Today we're going to take a look at the well-established Rongsheng Petrochemical Co., Ltd. (SZSE:002493). The company's stock saw a double-digit share price rise of over 10% in the past couple of months on the SZSE. 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 Rongsheng Petrochemical's outlook and value based on the most recent financial data to see if the opportunity still exists.
Is Rongsheng Petrochemical Still Cheap?
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 33.46x is currently trading slightly below its industry peers' ratio of 34.46x, which means if you buy Rongsheng Petrochemical today, you'd be paying a decent price for it. And if you believe that Rongsheng Petrochemical 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. Is there another opportunity to buy low in the future? Since Rongsheng Petrochemical's share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
Can we expect growth from Rongsheng Petrochemical?
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. Rongsheng Petrochemical's earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.
What This Means For You
Are you a shareholder? It seems like the market has already priced in 002493's positive outlook, 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 002493? 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 002493, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for 002493, 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'd like to know more about Rongsheng Petrochemical as a business, it's important to be aware of any risks it's facing. For example, we've found that Rongsheng Petrochemical has 2 warning signs (1 is concerning!) that deserve your attention before going any further with your analysis.
If you are no longer interested in Rongsheng Petrochemical, 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.