Frencken Group Limited (SGX:E28), a machinery company based in Malaysia, led the SGX gainers with a relatively large price hike in the past couple of weeks. Less-covered, small caps tend to present more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s examine Frencken Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. See our latest analysis for Frencken Group

What is Frencken Group worth?

Frencken Group appears to be overvalued by 25% at the moment, based on my discounted cash flow valuation. The stock is currently priced at S$0.63 on the market compared to my intrinsic value of SGD0.5. This means that the buying opportunity has probably disappeared for now. But, is there another opportunity to buy low in the future? Since Frencken Group’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. 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 Frencken Group 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. 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. However, with a negative profit growth of -11.74% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Frencken Group. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? If you believe E28 is currently trading above its value, selling high and buying it back up again when its price falls towards its real value can be profitable. Given the uncertainty from negative growth in the future, this could be the right time to reduce your total portfolio risk. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on E28 for a while, now may not be the best time to enter into the stock. Its price has risen beyond its true value, on top of a negative future outlook. However, there are also other important factors which we haven’t considered today, such as the track record of its management. Should the price fall in the future, will you be well-informed enough to buy?