Binhai Investment Company Limited (HKG:2886), which is in the gas utilities business, and is based in Hong Kong, received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$1.48 at one point, and dropping to the lows of HK$1.15. 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 Binhai Investment's current trading price of HK$1.20 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 Binhai Investment’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Binhai Investment

What's the opportunity in Binhai Investment?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 7.5% below my intrinsic value, which means if you buy Binhai Investment today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth HK$1.30, then there’s not much of an upside to gain from mispricing. In addition to this, Binhai Investment has a low beta, which suggests its share price is less volatile than the wider market.

Can we expect decent returns from Binhai Investment?

Valuation is only one aspect of forming your investment views on Binhai Investment. Another thing to consider is whether it is actually a high-quality company. The best type of investment is always in a great company, producing robust returns at a cheap price. We can determine the quality of a stock many ways; one way is to look at how much return it generates relative to the money we’ve invested in the stock. Binhai Investment is expected to return 17% of your investment in the next couple of years if you buy the stock today. This is a relatively good return on your investment which builds up the case for owning the stock.

What this means for you:

Are you a shareholder? It seems like the market has already priced in 2886’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 the stock? And will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping tabs on 2886 for a while, now may not be the most optimal time to buy, given it is trading around its fair value. However, the high returns are encouraging for 2886, which means it’s worth further examining other factors such as the track record of its management team, in order to take advantage of the next price drop.