DRB-HICOM Berhad (KLSE:DRBHCOM), is not the largest company out there, but it received a lot of attention from a substantial price movement on the KLSE over the last few months, increasing to RM1.12 at one point, and dropping to the lows of RM0.77. 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 DRB-HICOM Berhad's current trading price of RM0.80 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 DRB-HICOM Berhad’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 DRB-HICOM Berhad
What's The Opportunity In DRB-HICOM Berhad?
The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’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 16.17x is currently trading slightly below its industry peers’ ratio of 18.82x, which means if you buy DRB-HICOM Berhad today, you’d be paying a decent price for it. And if you believe DRB-HICOM Berhad should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, DRB-HICOM Berhad’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
Can we expect growth from DRB-HICOM Berhad?
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. With profit expected to more than double over the next couple of years, the future seems bright for DRB-HICOM Berhad. 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 DRBHCOM’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 track record of its management team. Have these factors changed since the last time you looked at DRBHCOM? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?