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BYD Electronic (International) Company Limited (HKG:285), which is in the communications business, and is based in China, received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$12.42 at one point, and dropping to the lows of HK$9.53. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether BYD Electronic (International)'s current trading price of HK$9.53 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at BYD Electronic (International)’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 BYD Electronic (International)
What is BYD Electronic (International) worth?
According to my relative valuation model, the stock seems to be currently fairly priced. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 12.03x is currently trading slightly below its industry peers’ ratio of 12.35x, which means if you buy BYD Electronic (International) today, you’d be paying a reasonable price for it. And if you believe BYD Electronic (International) should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. So, is there another chance to buy low in the future? Given that BYD Electronic (International)’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of BYD Electronic (International) 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. BYD Electronic (International)’s earnings over the next few years are expected to increase by 57%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has already priced in 285’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 financial strength of the company. Have these factors changed since the last time you looked at 285? Will you have enough conviction to buy should the price fluctuate below the true value?