In This Article:
Pacific Basin Shipping Limited (HKG:2343), which is in the shipping 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. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Pacific Basin Shipping’s outlook and valuation to see if the opportunity still exists.
Check out our latest analysis for Pacific Basin Shipping
What's the opportunity in Pacific Basin Shipping?
The stock seems fairly valued at the moment according to my relative valuation model. I’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 17.16x is currently trading slightly above its industry peers’ ratio of 14.01x, which means if you buy Pacific Basin Shipping today, you’d be paying a relatively fair price for it. And if you believe that Pacific Basin Shipping should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because Pacific Basin Shipping’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
What does the future of Pacific Basin Shipping 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. 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. Pacific Basin Shipping’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 2343’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 track record of its management team. Have these factors changed since the last time you looked at 2343? Will you have enough conviction to buy should the price fluctuate below the true value?