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Shanghai Electric Group Company Limited (HKG:2727), which is in the electrical 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$2.92 at one point, and dropping to the lows of HK$2.42. 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 Shanghai Electric Group’s current trading price of HK$2.5 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 Shanghai Electric Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
See our latest analysis for Shanghai Electric Group
What’s the opportunity in Shanghai Electric Group?
According to my valuation model, Shanghai Electric Group seems to be fairly priced at around 14.1% above my intrinsic value, which means if you buy Shanghai Electric Group today, you’d be paying a relatively fair price for it. And if you believe that the stock is really worth HK$2.19, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because Shanghai Electric Group’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
Can we expect growth from Shanghai Electric Group?
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 -10.5% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Shanghai Electric Group. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? 2727 seems fairly priced right now, 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 the stock, take a look at whether its fundamentals have changed.