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First Pacific Company Limited (HKG:142), which is in the diversified financial business, and is based in Hong Kong, saw a decent share price growth in the teens level on the SEHK over the last few months. 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 First Pacific’s outlook and value based on the most recent financial data to see if the opportunity still exists.
View our latest analysis for First Pacific
What is First Pacific worth?
According to my relative valuation model, the stock seems to be currently fairly priced. 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 First Pacific’s ratio of 13.5x is trading slightly above its industry peers’ ratio of 11.86x, which means if you buy First Pacific today, you’d be paying a relatively reasonable price for it. And if you believe that First Pacific should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. Furthermore, First Pacific’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
Can we expect growth from First Pacific?
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. First Pacific’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 142’s positive outlook, with shares trading around its fair value. 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 142? Will you have enough conviction to buy should the price fluctuate below the true value?
Are you a potential investor? If you’ve been keeping tabs on 142, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for 142, 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.