Hong Leong Asia Ltd. (SGX:H22), is not the largest company out there, but it received a lot of attention from a substantial price movement on the SGX over the last few months, increasing to S$0.71 at one point, and dropping to the lows of S$0.64. 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 Hong Leong Asia's current trading price of S$0.64 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 Hong Leong Asia’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 Hong Leong Asia

What Is Hong Leong Asia Worth?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 8.67x is currently trading slightly below its industry peers’ ratio of 9.71x, which means if you buy Hong Leong Asia today, you’d be paying a reasonable price for it. And if you believe that Hong Leong Asia should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. So, is there another chance to buy low in the future? Given that Hong Leong Asia’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Hong Leong Asia 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 profit expected to grow by 70% over the next couple of years, the future seems bright for Hong Leong Asia. 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 H22’s positive outlook, with shares trading around industry price multiples. 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 H22? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?