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China Lesso Group Holdings Limited (HKG:2128), which is in the building business, and is based in China, received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$4.44 at one point, and dropping to the lows of HK$3.92. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether China Lesso Group Holdings’s current trading price of HK$4.06 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 China Lesso Group Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
View our latest analysis for China Lesso Group Holdings
What’s the opportunity in China Lesso Group Holdings?
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 China Lesso Group Holdings’s ratio of 4.71x is trading slightly below its industry peers’ ratio of 9.21x, which means if you buy China Lesso Group Holdings today, you’d be paying a fair price for it. And if you believe China Lesso Group Holdings should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. In addition to this, it seems like China Lesso Group Holdings’s share price is quite stable, which could mean 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 does the future of China Lesso Group Holdings look like?
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. 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 profit expected to grow by a double-digit 15% over the next couple of years, the outlook is positive for China Lesso Group Holdings. 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? It seems like the market has already priced in 2128’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 2128? Will you have enough conviction to buy should the price fluctuate below the true value?