BYD Electronic (International) Company Limited (HKG:285), a communications company based in China, saw significant share price volatility over the past couple of months on the SEHK, rising to the highs of HK$13.24 and falling to the lows of HK$7.86. 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 BYD Electronic (International)’s current trading price of HK$8.25 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’s the opportunity in BYD Electronic (International)?
According to my relative valuation model, the stock seems to be currently fairly priced. In this instance, I’ve used the price-to-equity (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that BYD Electronic (International)’s ratio of 6.75x is trading slightly below its industry peers’ ratio of 10.43x, which means if you buy BYD Electronic (International) today, you’d be paying a fair price for it. And if you believe that BYD Electronic (International) should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Is there another opportunity to buy low in the future? Since BYD Electronic (International)’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 BYD Electronic (International) 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. BYD Electronic (International)’s earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to 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?