In This Article:
Ten Pao Group Holdings Limited (HKG:1979), which is in the electrical business, and is based in Hong Kong, led the SEHK gainers with a relatively large price hike in the past couple of weeks. 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? Today I will analyse the most recent data on Ten Pao Group Holdings’s outlook and valuation to see if the opportunity still exists.
See our latest analysis for Ten Pao Group Holdings
What's the opportunity in Ten Pao 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 Ten Pao Group Holdings’s ratio of 5.95x is trading slightly below its industry peers’ ratio of 8.6x, which means if you buy Ten Pao Group Holdings today, you’d be paying a fair price for it. And if you believe Ten Pao 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. Is there another opportunity to buy low in the future? Since Ten Pao Group Holdings’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.
What does the future of Ten Pao Group Holdings look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Ten Pao Group Holdings’s earnings over the next few years are expected to increase by 55%, indicating a highly optimistic future ahead. This should lead to more robust 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 1979’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 1979? Will you have enough confidence to invest in the company should the price drop below its fair value?