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Singamas Container Holdings Limited (HKG:716), which is in the machinery business, and is based in Hong Kong, led the SEHK 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 Singamas Container Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
See our latest analysis for Singamas Container Holdings
Is Singamas Container Holdings still cheap?
The stock seems fairly valued at the moment according to my relative valuation model. 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 15.46x is currently trading slightly above its industry peers’ ratio of 10.6x, which means if you buy Singamas Container Holdings today, you’d be paying a relatively fair price for it. And if you believe that Singamas Container Holdings should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. Furthermore, Singamas Container Holdings’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 Singamas Container Holdings?
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. Though in the case of Singamas Container Holdings, it is expected to deliver a negative revenue growth of -3.8% over the next couple of years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? Currently, 716 appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on 716, take a look at whether its fundamentals have changed.