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Lee and Man Paper Manufacturing Limited (HKG:2314), which is in the forestry business, and is based in Hong Kong, saw a decent share price growth in the teens level on the SEHK over the last few months. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s examine Lee and Man Paper Manufacturing’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Lee and Man Paper Manufacturing

What's the opportunity in Lee and Man Paper Manufacturing?

Great news for investors – Lee and Man Paper Manufacturing is still trading at a fairly cheap price. My valuation model shows that the intrinsic value for the stock is HK$7.21, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. However, given that Lee and Man Paper Manufacturing’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of Lee and Man Paper Manufacturing 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. However, with a negative profit growth of -11% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Lee and Man Paper Manufacturing. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Although 2314 is currently undervalued, the adverse prospect of negative growth brings about some degree of risk. I recommend you think about whether you want to increase your portfolio exposure to 2314, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping tabs on 2314 for some time, but hesitant on making the leap, I recommend you research further into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.