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Sky Light Holdings Limited (HKG:3882), which is in the consumer durables business, and is based in China, saw a decent share price growth in the teens level on the SEHK over the last few months. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Sky Light Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
View our latest analysis for Sky Light Holdings
What is Sky Light Holdings worth?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 15.09% above my intrinsic value, which means if you buy Sky Light Holdings today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is HK$0.54, there’s only an insignificant downside when the price falls to its real value. Is there another opportunity to buy low in the future? Since Sky Light Holdings’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. 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 Sky Light Holdings 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 revenues expected to grow by 63.3% over the next couple of years, the future seems bright for Sky Light Holdings. If the level of expenses is able to be maintained, 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 3882’s positive outlook, with shares trading around its fair value. 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 the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping tabs on 3882, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.