Shanghai Prime Machinery Company Limited (SEHK:2345), a machinery company based in China, saw significant share price volatility over the past couple of months on the SEHK, rising to the highs of HK$1.7 and falling to the lows of HK$1.44. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Shanghai Prime Machinery’s current trading price of HK$1.47 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Shanghai Prime Machinery’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. See our latest analysis for Shanghai Prime Machinery
What is Shanghai Prime Machinery worth?
According to my valuation model, Shanghai Prime Machinery seems to be fairly priced at around 4% above my intrinsic value, which means if you buy Shanghai Prime Machinery today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is HK$1.41, there’s only an insignificant downside when the price falls to its real value. Furthermore, it seems like Shanghai Prime Machinery’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.
What kind of growth will Shanghai Prime Machinery generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations. With revenues expected to grow by a double-digit 12.61% over the next couple of years, the outlook is positive for Shanghai Prime Machinery. If the level of expenses is able to be maintained, it looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? Shanghai Prime Machinery’s optimistic future growth appears to have been factored into the current share price, 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 the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?