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Harbin Electric Company Limited (HKG:1133), a electrical company based in China, received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$2.84 at one point, and dropping to the lows of HK$2.2. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Harbin Electric’s current trading price of HK$2.41 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 Harbin Electric’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 Harbin Electric
Is Harbin Electric still cheap?
According to my relative valuation model, the stock is currently overvalued. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 32.22x is currently well-above the industry average of 15.62x, meaning that it is trading at a more expensive price relative to its peers. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since Harbin Electric’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 kind of growth will Harbin Electric generate?
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. With profit expected to more than double over the next couple of years, the future seems bright for Harbin Electric. 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 well and truly priced in 1133’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe 1133 should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.