Hong Leong Asia Ltd. (SGX:H22), might not be a large cap stock, but it saw significant share price movement during recent months on the SGX, rising to highs of S$0.74 and falling to the lows of S$0.61. 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 Hong Leong Asia's current trading price of S$0.66 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Hong Leong Asia’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 Hong Leong Asia
What Is Hong Leong Asia Worth?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Hong Leong Asia’s ratio of 7.97x is trading slightly below its industry peers’ ratio of 8.13x, which means if you buy Hong Leong Asia today, you’d be paying a reasonable price for it. And if you believe that Hong Leong Asia should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Although, there may be an opportunity to buy in the future. This is because Hong Leong Asia’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.
What kind of growth will Hong Leong Asia generate?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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. Hong Leong Asia's earnings over the next few years are expected to increase by 33%, 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 H22’s positive outlook, with shares trading around industry price multiples. 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 H22? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?